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Close Mortgage or Keep Equity fund?

  • 14-08-2007 4:36pm
    #1
    killerwatt
    Closed Accounts Posts: 13 ✭


    Heres a scenario I'd like some opinions on.

    A friend own two houses both mortgaged. 100k and 300k. One of these houses (100k) is rented out to tenents and covers the mortgage payments

    He also has 100k in a stock fund.

    What opinions are there in regard to the pro's and cons of cashing in the stock account to pay off the 100k mortgage and using the rent to pay towards the 300k house (along with his own contributions to the payments)?

    Expect the markets to have a 4% return an avrg. for the forseeable future. - ignoring the disasters that are going on this week.

    Is it a smart move?

    Is the hard work of saving up a 100k better spent on closing the mortgage? Is it better to continue with the mortgage payments and risk the markets?

    I know theres no clear answer here, but I'd welcome opinions on what he should do... he's the indecisive type


Comments

  • #2
    A Random Walk
    Closed Accounts Posts: 346 ✭✭A Random Walk


    You could look on the repayment of the mortgage as a "risk free" return i.e. let's assume your friend is paying 5% on the 100k outstanding, paying that off is the same as getting 5% in the bank.

    If it was me and your friend is comfortable with his level of debt, I would make sure he is maximising his pension options first, the tax advantages are huge.

    There are some tax reasons why he probably shouldn't use the 100k against the rental property.

    He'll probably also wish to maintain an emergency and a contingency fund rather than putting the full 100k against the mortgages.


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