Lump Sum To Pay Off House?
Jason is trying to help his aunt figure out how to retire and what to do with her house.
ANSWER: I would pay off the house and take the extra $1,000 each month and put it into a good growth stock mutual fund.
Her CPA thinks that she’s better off borrowing money at 5% and investing it at 12%, but because the account is taxable, 12% ends up looking like 9.6%. The CPA will still say that she’s making 9.6%, which is still better than 5%, but he’s not thinking about the risk involved with investment.
Ask your aunt, “What if your house was paid for? Would you go borrow $100,000 and then invest that money?” In other words, if the house is paid for do you borrow money on it in order to invest? Her answer would be no because she’s measuring the risk with her heart, not her head.