should I take out a bigger mortage
Question: I am lucky enough to have paid off my $230,000 house and have bought some land which I owe $40,000 on but should pay off in the next year or so. I plan to build a new house on the land and sell my existing one which should result in a small < $30,000 or non-existent mortgage on the new home. I have an income that exceeds 100k per year, but I am worried that I am being too conservative with my money. I wonder should I take out a bigger mortage just to have some money to invest with ?
Thanks for any advice,
Answer: Good Question.
I say max out the mortgage; but make sure that your resulting investments are very conservatively balanced. Here is my logic.
1. The actual interest paid on a 7 percent mortgage is only about 4.7 percent; because of the home mortgage interest tax deduction.
2. With a portfolio of 1/3 bonds and 2/3 equities, your average annual return should be about 8-9 percent.
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