Is it profitable to amortize?
Nearly all individuals who purchase a property will have to get a mortgage, which raises the
issue of repayment of the loan. Is it more profitable to get out of debt or can we make the money grow faster through alternative investments?
The purpose of this paper is to examine whether there are incentives for individual households to refrain from amortize. In general, one can identify three reasons to amortize; the first is a general need to save, the second reason is to save specifically for retirement and the third reason is the household's assessment of the probability of large negative shocks, such as a a decline of the real estate market. But the question is whether the principal is what is the most profitable for households? Based on actual interest rates and yields for the last 30 years and empirical research, this paper will analyze whether it is more advantageous for households to save by investing in financial assets such as mutual funds than by amortizing.
This bachelor thesis is the final part for me at the bachelor program Real Estate and Finance at The Royal Institute of Technology and has been implemented in the spring of 2014. I would like to express my gratitude to everyone who has contributed
information to this paper.
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