Albert B Fernandez's List: $

• If a person had an extra $100 a month to either pay down a mortgage or play the stock market,  which would be a better use of the money?
  
• compare prepaying a mortgage with investing in a Standard & Poor's 500 Index  mutual fund
• We hypothesized a person buying an average-priced home with 20 percent down and a 30-year fixed-rate mortgage at 132 different  points between January 1986 and December 1996.
  
• We then sold the hypothetical home 10, 15, or 20 years later at the prevailing U.S. average price. We allowed our virtual  borrower to refinance to a 15- or 30-year mortgage at appropriate points and catch lower rates.
  
  Then we ran those numbers again, adding $100 to each monthly mortgage payment or putting $100 per month into the no-load,  low-expense Vanguard 500 Index fund.
  
• It turns out that while home may be where the heart is, it's usually not where the heartiest returns are.
• True, in recent  years and for short periods since 1969, home prices have climbed as much as 16 to 27 percent a year in some regions. But on  average, they rose only about 6.5 percent a year during that period.
• The stock market, meanwhile, went through some dramatic swings. But over the last 20 years it averaged about a 10 percent  annual gain, as measured by the S&P 500.
  
• In the scenarios in which the home was sold after 10 years, we usually got a bigger bang from investing the extra $100 in  the mutual fund than adding it to the mortgage payment. On average over our trials, the fund investment produced a gain of  $10,058 vs. $4,051 from the added mortgage payment.
  
• The index fund didn't always win. In about a third of those 10-year periods, paying down the mortgage produced a better return.  But it's worth noting that when prepaying had the edge, it was a small one, ranging from a meager $1 to $2,799. When the fund  beat out prepayment, it did so by $70 to $16,763.
  
• When we extended our trials to 15- and 20-year periods of home ownership, the mutual fund had the advantage 100 percent of  the time. The average dollar gains from the stock investment grew from $10,058 in the 10-year trials to $19,613 in the 15-year  competitions and $41,931 in the 20-year ones.
  
  So the
• longer you own your home, the less likely it is that mortgage prepayment will be the better choice.
  
• If you need access  to your money in an emergency, for example, it will be almost instantly obtainable if it's in a mutual fund and much harder  to get to if it's tied up in your house.
  

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