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Pay Off the Mortgage or Pay into the 401(k)? |
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Monday, 11 September 2006 |
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Some 38 percent of homeowners who make extra mortgage-principal payments would be better off putting those dollars into retirement accounts such as 401(k)s, says the National Bureau of Economic Research.
Analysts at the federal agency say that for these homeowners a dollar put into a tax-deferred retirement account can, over time, earn an average of 11 to 17 cents more than it would in an extra principal payment.
Of course, that means 62 percent of the homeowners studied should continue making extra principal payments.
The researchers essentially endorsed the rule of thumb about mortgage prepayments: If the return on the 401(k) investment is higher than the interest rate on the mortgage, go with the investment. If not, prepay the mortgage.
--The Philadelphia Inquirer, Jeff Brown (09/07/2006)
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