Paying off mortgage early vs investing calculator dave
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As always, your personal life situation should be the primary determinant of which direction you choose to go. You could save a lot of money by removing your mortgage loan off your plate before the term ends. Getting rid of debt. No one likes owing large amounts of money to a lender, especially if it spans 15 or 30 years like most mortgages.
Paying the mortgage off early means one less big bill to worry about. Grow your equity. Paying down your mortgage faster means accumulating more equity in your home at a quicker rate. This also means you could take another route and refinance your loan, which can lower your monthly mortgage payments. Any additional money you spend to pay off your mortgage faster is money that is no longer available for other investments. It could be your k , a rainy-day fund, a buying opportunity like a boat or car, or being able to take advantage of an investment in the stock that could produce a greater return.
Your money is inaccessible. In the event of an unexpected medical emergency or other critical financial situation, selling your property to get the funds you need will be a drawn-out process, and potentially for less than the house is worth if you are in desperate need.
Missing out on tax breaks. Money that goes toward paying off your mortgage faster means less available to put into your tax-deferred retirement accounts. You also risk missing out on tax deductions for mortgage interest if you itemize when you file your taxes. Pros and Cons to Investing Instead Most people cannot wait to shed their mortgage debt burden and own their home outright. But it is not always the best financial idea to devote a lot of money to paying off your mortgage quickly.
This is especially true when mortgage rates remain historically low, and your monthly payments are very affordable already. Instead, it allows you the latitude to add to your nest egg through other investments. Mortgage concept photograph Pros to Investing First Put your money to work sooner for faster returns.
The main reason to invest your money instead of paying down your mortgage faster is the bigger return on investment. The average annual stock market returns have exceeded mortgage interest rates recently, offering an opportunity to benefit from the difference. More cash available when you need it. Unlike a home that ties up your money, and only appreciates gradually in value, investing in more liquid financial assets means you can easily sell and access your money if you need to.
If you have an employer-sponsored retirement account, and your job matches your contributions, then that is additional earnings over time from investing the extra money. There are many reasons why you might choose either to pay your mortgage early or invest more. You could save thousands or tens of thousands of dollars in interest payments.
When you pay your mortgage early, those interest savings are a guaranteed return on your investment. Build equity: Paying down your mortgage faster means building equity in your home more quickly. This can help you qualify for refinancing , which can save you even more money in the long run.
You may be paying off your mortgage early at the expense of your retirement savings, emergency fund or other higher return opportunities. Loss of some tax breaks: If you choose to pay down your mortgage instead of maxing out your tax-advantaged retirement accounts, you will give up those tax savings.
Plus, you may lose out on tax deductions for mortgage interest if you normally itemize. For many years, average stock market returns have been significantly higher than mortgage rates , which means you stand to gain quite a bit from the difference. Liquid investment: Unlike a home that ties up your wealth, having your money in stocks, bonds and other market investment means you can easily sell and access your money if you need to.
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