mortgage prepaying

[jIM_Ohio]

I think this varies.

1) how many years until mortgage is paid off
2) what is the "time value" of the money you would save on mortgage payments
3) how close person is to retirement

For example, I have ran my numbers...

it makes sense for me to pay down our 7.4% 2nd mortgage (30 yr fixed) early. We can send $1200/year to pay this down. Saves us 15 years of payments (time value of the money is QUITE HIGH).

It does not make sense to pay down our 5.75% 1st mortgage (30 yr fixed). The "pay down" would save us 4 years, and this is close to "early retirement", so building up a taxable account to draw down in early retirement over 15 years takes the priority over being "debt free".

I agree to look at paying down mortgage as the conservative portion of an otherwise aggressive portfolio.

[Scanner]

I'm thinking more along the lines of investing in a bond fund where the interest rates will somewhat fluctuate with the market, not an individual bond.

It kind of brings up another subject - why go with bond funds vs. individual bonds?

As you know, I am fairly down on bonds, except perhaps for college investing where I can see the need for a liquid investment that's safe.

I know there's principal risk with any single bond, unless you purchase an insured bond. That's about the only reason I can see going with a bond fund. I know in the past I have said, "Stick it in a muni bond fund." but that's only because I realize the novice to investing doesn't have the wherethal to research muni bonds, their ratings and make a subsequent investment.

I don't know. . .I think market risk, which you have with bond funds, is more of a concern than principal risk, especially, with any decent amount of money, you should be able to spread the principal around.

I'd rather secure a %age.

I say pick bonds over bond funds as a general rule when going with the debt sector investments. But if possible, pick paying down a mortgage over buying a bond.

Of course, there is minimal prinicipal risk when going with gov't bonds too.

[disneysteve]

It kind of brings up another subject - why go with bond funds vs. individual bonds.

I think the answer is the same as why go with stock mutual funds instead of individual stocks.

1. Diversification. You don't want to buy just one or two bonds, so if you have a relatively small amount of money to invest, you are safer buying into a fund and getting instant diversification. If one bond defaults, it doesn't wreck your portfolio.

2. Ability to invest over time. Many, if not most, of us invest a set amount each month over time, either through payroll deduction or on our own. That method lends itself to a fund over invdividual securities. I can't buy an individual bond with $200/month, but I can build a nice stake in a bond fund over time that way.

3. Professional management. Even if you choose a bond index fund, you get the benefit of professional managament of your money. You don't need to do your own research of the credit worthiness of the individual bond issuers.