Comments on: Million Dollar Question: Pay Off Your Mortgage Early or Invest More Now?

By: Chris Peach

Chris Peach — Wed, 24 Oct 2018 16:20:17 +0000

In reply to Michele Cooper. There are always positives and negatives to consider with any decision. Thanks for weighing in! :)

By: Michele Cooper

Michele Cooper — Wed, 24 Oct 2018 09:58:33 +0000

There are certain drawbacks in paying off the mortgage early. The extra money that you stash away into your mortgage every month may not be helpful if you suffer a financial setback, you may have a hard time getting access to that money. You’ll have to apply and pay for a home equity loan which carries costs plus interest.

By: Jack

Jack — Mon, 20 Aug 2018 16:52:35 +0000

There are so many errors in this “extra mortgage payments” example that I don’t know where to start. It seems to imply you would earn more paying down a 3.84% loan than investing at 8%. Illogical on its face. One, paying off the extra $585/month saves 14 years from the loan (but takes 15 years, 11 months). Then the example assumes it takes 14 years to pay the loan, not 16 (rounded). Two, investing not only earns the interest, it keeps the principal, so the net gain is all of the principal plus the investment income, less the value of the 30 year loan when the assumed shortened loan ends. It also compares a 14 year gain versus a savings in interest over 30 years (without discounting the last 14 years to a point in time). In this example (8% vs. 3.84%), The investment has grown to $224,550 after 191 monthly payments (15 years, 11 months) when the shortened loan (due to higher payments) would’ve ended. The lower loan amount owed is $152,621. The net gain is $71,929 after 15 years, 11 months. If you continued to invest $585 for the last ~14 years of the loan, the total account would grow to $872,300 when the 30 year loan was finally paid. That’s the real gain. (I agree it carries more risk, especially to assume a constant 8% return. Plus, taxes on the gains or mortgage interest are not considered here, especially after the increase in the standard deduction.)

Separately, always pay credit card debt and car loans before mortgages. Interest rates are higher and not deductible while mortgages are to some extent (less so due to higher standard deduction post-TCJA).

By: Kimberly Schneider

Kimberly Schneider — Tue, 03 Jul 2018 16:05:25 +0000

In reply to Tyler. Don't forget to subtract off Realtor commission, closing costs, any improvements you have made, and what you have spend in upkeep costs throughout the course of ownership to maintain home value.

By: Tyler

Tyler — Tue, 16 Jan 2018 18:11:57 +0000

Did anyone else catch the the investment should be calculated over 16 years not 14 because the house was paid off in 16 years not 14. So if you want a direct comparison on the growth of that investment in relation to the savings on the mortgage you would have to do them over the same exact time period.

By: Tyler

Tyler — Tue, 16 Jan 2018 17:24:16 +0000

One thing to consider. (I am a Dave Ramsey guy so I don’t like debt, but as a business owner I am always looking at return on investment). Per your calculations you would save more in interest then what you would get from investing that money. But in reality the way we should look at this is if you had to cash out at any point in time what method would yield you the most amount of savings+return (or cash). Even though the house would have saved you 87k in interest. Your true value after the fact (because the house is paid off) would be whatever the house is worth. Lets say 250k (original purchase price). With the investment you would have about 80k in retained earnings and a total of 170k (ish) after 14 years. But what about the Equity you built in those 14 years making regular payments? That is another factor you must consider. Since you are comparing two methods you must look at what your total net would be if you cashed out at any time from both. Then factor in what kind of risk you want on your investment portfolio.

By: Chris Peach

Chris Peach — Mon, 11 Dec 2017 15:13:29 +0000

In reply to Anna. That's true. There are pros and cons to both sides.

By: Anna

Anna — Fri, 08 Dec 2017 22:43:49 +0000

I agree that it is important to pay off your mortgage as soon as you can. Having a nice nest egg in the bank can be really nice. However, paying off your house is far more important, because once your home is paid off you can look forward to saving the money you would have been putting on your mortgage and instead of putting that money in the bank for retirement and other purposes.

By: Chris Peach

Chris Peach — Wed, 11 Oct 2017 18:43:54 +0000

In reply to Stephanie Parnell. Short term investments might be a good option for that savings, but don't forget that they are still not as liquid because you might have to pay fees if you try to get out of investments early if/when the property comes up for sale.

By: Stephanie Parnell

Stephanie Parnell — Sat, 07 Oct 2017 16:26:55 +0000

Wow! Great information with great perspectives. These are exactly the questions I have been thinking about for months!! I’m 33, got an emergency fund in place, save 15% in retirement accounts & have a mortgage. (never had a credit card) I am definitely going to save the amount I need to pay off my house in 10Years

BUT ( how i do that is the question) …….. i really want that money in a short term investing account. This way I can use it to purchase 10 acres to build my forever home on when that perfect property pops up in the meantime.

This is my thought process who knows if it will change. LOL