Previously, we posted about whether it makes sense to pay off your mortgage before you retire. Today, we are covering a related topic. Early in your financial journey, let’s say you get a sudden windfall, or begin earning a high salary. Does it make more sense to put the money toward paying off your mortgage, or should you put it into other investments? Or would a combination make more sense?
Perhaps the easiest way to answer this question is to look at a couple of contrasting examples
- Example 1: When Investing Makes More Sense. Dale bought a home when interest rates were low, and locked in a fixed rate. His monthly mortgage payments are easily affordable, and the mortgage does not trouble him psychologically. What is more, several investment opportunities intrigue him, each of which could bring him higher returns than the interest on his mortgage. Since Dale’s investments could have decades to grow, it makes sense to him to go ahead and put the money there, instead of paying off the mortgage.
- Example 2: When Paying Off the Mortgage Makes Sense. Matt purchased a home when interest rates were high. He doesn’t have a lot of equity in his home and is having a hard time refinancing it. In addition, he is struggling with other high-interest debts. On top of that, psychologically, he struggles with the weight of the mortgage. It keeps him up at night. He wishes it was just paid off. Additionally, Matt knows little about investing and has a strong aversion to risk. Arguments can be made in both directions concerning this scenario. On one hand, Matt needs to learn how to invest at some point, and it may still mathematically be the best option. On the other hand, there are a few good reasons for Matt to pay off the mortgage if he can. For one thing, it will get him away from its high-interest rate. For another, he will now have enough equity in the home that he can borrow against it at a lower interest rate, which could help pay off some of the other high-interest debts he is burdened with.
Finally, there is the psychological aspect to consider. For Matt, it may be more important to get rid of the anxiety and stress associated with the mortgage than it is to maximize his savings and investments over time. After all, time is the one thing you can never make more of, and being able to spend one’s time not worrying can be worth it.
Get the Solutions and Guidance You Need
Hopefully reading the examples above helped you think through some of the factors in your situation.
Our friendly mortgage experts can offer you personalized recommendations during your consultation simply contact us at (206) 352-6453. If you decide not to pay off your existing mortgage, we can help you refinance if necessary and explore other options that can help you to maximize your wealth. With interest rates currently about 1.5% lower than the highest rates of 2023 savings through refinancing is possible. Use our instant rate tool https://www.bluesquaremortgage.com/rates/ to see what your rate might be today. Sign up for our rate alerts so you know immediately when our discounted rates drop to level for you to secure savings.
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