The financial crisis has torpedoed the retirement planning of many seniors. Those foolish enough to have followed the advice of investment advisors who preached that homeowners should convert all their home equity into investments, now find that their home equity is negative because of declining home prices. At the same time, the value of any common stock they purchased by mortgaging their houses up to the hilt is probably way down because of the sharp decline in stock prices. We can't undo the past, but we can make better decisions in the future. This is a guide on how to make decisions about mortgage repayment. The Core Principle is That Repaying a Mortgage Is an Investment: The yield on mortgage repayment is the mortgage interest rate. Repaying a 6 percent mortgage yields 6 percent, the same return as acquiring a 6 percent bond. Note: Bonds and mortgages have different interest compounding periods, which impacts their "effective return," but not by enough to w...
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