Friday, April 13, 2007

Pay the Mortgage or Invest? Redux

In a previous post, I advanced the position that it is (almost) always advatangeous to pay down mortgage debt vs. putting the money in a higher-paying money market account.

This article focused on the word "almost".

My employer has what is called a Safe Harbor 401(k) Matching program. Long story short, it matches 4% on the first 5% of a person's 401(k) contribution. These company matches vest instantly, which is a critical distinction.

Thus, if you make $50,000 a year, a $2,500 annual contribution is matched with an additional $2,000 from the company.

In this scenario, I would unequivocably encourage contributing at least to the point of the maximum company match. The guaranteed rate of return on your investment is 80% ($2,000 / $2,500), so unless you are in a Payday Loan Trap, this is going to be far more beneficial to your net worth than paying down your mortgage.

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