Housing market rising interest rates

Real Estate
#1

Housing rates have gone from sub 2% to now 6% due to the feds tightening the markets.

Back when rates were 2% they were technically under the 3% fed goal of long-term inflation therefore it was a steal on the mortgage. Nowadays at nearly 6% mortgage rates, I was wondering if it’s better to treat it like a credit card debt and pay it off as fast as possible. Mathematically if I increase payments towards the principal every month I can shave off a couple of years on the rate but that comes at the opportunity cost of investing in the stock market.

I want to hear everyone’s thoughts on this idea.

1 Like
#2

Hi @David!

It’s a good question. I’m not sure if there is a right or wrong answer. To your point, at 3% it can make a lot more sense to pay the mortgage off at a normal pace and use any remaining capital you have to invest somewhere. I’m not sure where the cutoff point is when this no longer makes sense.

The “real rate” (nominal rate minus inflation) is important here too. Because as inflation increases, the nominal rate may increase, but the borrower benefits at the expense of the lender.

My personal view is at 5% or 6%, I don’t treat it like credit card debt since CC debt is still usually at a MUCH higher rate. I don’t think I would accelerate mortgage payments on an investment property, even at 5% or 6%, but I’m not sure the number when I would start considering it.

I’m curious what others say here as well!!