Pay off mortgage or invest

Pay it off.

Then use your extra $$ you're saving from month to month to max out retirement accounts. Eventually you want to be at a spot where you can do this on January 1st every year so your money can capitalize the entire year.

If you'll really invest it, you should do so. If you'd just fritter the money away then pay off the house.

From a strictly financial perspective, as long as your interest rate is reasonable (around 4-5%) then you would be better in the long run to invest the extra money because, generally, the stock market gives a better return than the mortgage interetst rate.

There are other factors to consider such as the interest tax deduction and your current emergency cash fund, etc. But the main other factor is how much you prefer to be out of debt. If your desire to be out of debt outweighs your desire to make a few extra percent return on your investment, then pay off the mortgage.

Another Letsrunner with the problem of not knowing what to do with the thousands of dollars of cash they piled up.

jhggkjhg wrote:

From a strictly financial perspective, as long as your interest rate is reasonable (around 4-5%) then you would be better in the long run to invest the extra money because, generally, the stock market gives a better return than the mortgage interetst rate.

There are other factors to consider such as the interest tax deduction and your current emergency cash fund, etc. But the main other factor is how much you prefer to be out of debt. If your desire to be out of debt outweighs your desire to make a few extra percent return on your investment, then pay off the mortgage.

I would advise against this. Generally doesn't mean guarantee. Pay off the house so you don't owe anything to anyone, invest what you save from no longer having any mtg. With this advice why don't those same people take out a HELOC and invest it? Because they know there's risk involved.

There is no right or wrong answer--just opinions

Depends on many factors.

The biggest one is look at your interest rate. Do you know of an investment that can GUARANTEE a return greater than that rate? Because someone at a bank decided that your guaranteed return was a better way to invest their money than in the stock market. Right now you're guaranteed to lose 5% (or whatever your rate is) on that money until it's paid off. Is it really worth it to risk a guaranteed 5% loss on a potential 7% gain? Then you're look at a reality of only a couple percent gain with risk.

Another one is how close you are to retirement. The closer you are to retirement the more risk averse you should be. See above. Young people have more time to make money back that you lose. You put all your money in the stock market just before retirement and it crashes, you're not going to be retiring.

Finally, consider blended approahces. Look up an ammoritization calculator. Look how much money you will save on interest if you put half of it down now compared to all of it down. As the loan gets smaller the % of each payment going to interest vs. principle also goes down, so consider paying off half of it, which takes a greater than 50% chunk out of your interest over the next 20 years, and then invest the rest.

If you do pay it off now, I agree with the poster that said you should take the monthly payments and start investing those after it's paid off instead of buying a jetski every month.

jhggkjhg wrote:

From a strictly financial perspective, as long as your interest rate is reasonable (around 4-5%) then you would be better in the long run to invest the extra money because, generally, the stock market gives a better return than the mortgage interetst rate.

There are other factors to consider such as the interest tax deduction and your current emergency cash fund, etc. But the main other factor is how much you prefer to be out of debt. If your desire to be out of debt outweighs your desire to make a few extra percent return on your investment, then pay off the mortgage.

This is the exact right answer. I lot of personal finance is psychological. Everyone is different. I knew one guy who paid twice is mortage every month because he knew he wasnt discplined enough to keep the cash around.

Personally, I like to have the liquidity available. Homes are extremely illiquid. I don't mind the debt. But, again, everyone is different. Plus, i don't like the idea of putting all my capital in one specific asset (your home). I would prefer to diversify.

Paying off simple interest vs investing with compounding interest. Do the math.

No one has ever gone broke because they decided to pay off their debt. Real wealth building begins when you don't owe anyone.

If you're scraping together enough money to pay off the mortgage then I'd say no. You should have emergency fund available and it sounds like paying it off would deplete this to almost nothing.

How much extra can you put toward the monthly payment while still funding retirement accounts fully and not whittling away your personal emergency savings? Whatever that number is, that's how much you should pay extra each month. The more personal sacrifices you're willing to make each month, the larger that number will be and the faster you'll be a homeowner.

jhggkjhg wrote:

From a strictly financial perspective, as long as your interest rate is reasonable (around 4-5%) then you would be better in the long run to invest the extra money because, generally, the stock market gives a better return than the mortgage interetst rate.

There are other factors to consider such as the interest tax deduction and your current emergency cash fund, etc. But the main other factor is how much you prefer to be out of debt. If your desire to be out of debt outweighs your desire to make a few extra percent return on your investment, then pay off the mortgage.

This is the correct answer from a strictly rational investment perspective. Any decent return on investments probably exceeds the rate of your mortgage combined with the benefit of the interest deduction.

In real life, however, you're not just dealing with abstract investments. A big part of the benefit of home ownership is actually being able to live in the house-it's an investment, plus shelter. Paying off your mortgage reduces the risk of losing a place to live if you lose your job, if the stock market tanks, or if you have problems with creditors. A house is not as liquid as other investments but in lots of ways, that's good because it enforces discipline and keeps you from taking money out of investments for vacations, to buy a new car, etc.

It also depends on your local real estate market and your timeline. If you plan to live in your house until you die, you don't care about the value of your house going up. If you're a flipper in a rising market, you may want as much of the money in the house to be the bank's as possible.

As others have said, you really have to balance what's important to you, your tolerance for risk, and your particular circumstances.

ALWAYS be debt free. It is just common sense.

Another important consideration in the weekly "mortgage or stock market" thread on letsrun is that mortgages are front loaded with interest payments. On a 30 year $300k mortgage at 4.5%, you will pay about $125k in interest the first ten years and about $60k in principal over the same time period. Over the last ten years, you will only pay about $30k in interest. So, if you are looking to pay off a mortgage early instead of investing, you really need to do it in the first 10 years to get a substantial savings on interest. The later you do it, you are just doing the bank a favor and saving very little in interest payments.

Mortgage advice wrote:

I owe about 90k on my house and think I can scrape together enough cash to pay it off? Worth it?

I have 20 years left on the Ioan.

It would be cool to do it.

In addition to all of the above advice, determine if there is a prepayment penalty

Jose el Plomero wrote:

Paying off simple interest vs investing with compounding interest. Do the math.

Moran. Housing is not simple interest. The interest payments are all frontloaded so that you pay a majority of the interest in the first years and do not begin to significantly pay principle until the last few years. With 20 years left to go on what might have been a 30 year loan pre-paying means you mitigate a larger amount of interest than if you were to wait and pay it until term.

No penalty.

4% around 90K owed maybe a bit less.

I'm not a disciplined investor but a good saver of cash. I am self-employed so I keep most of my money liquid.

I could take the 90K and invest it, but part of me just wants to pay off the house and be done with it.

I have about 100k in my Roth and 250K in a 401K with my wife.

Another 225,000 in cash I use to run my business.

mortgageguyearly wrote:

No penalty.

4% around 90K owed maybe a bit less.

I'm not a disciplined investor but a good saver of cash. I am self-employed so I keep most of my money liquid.

I could take the 90K and invest it, but part of me just wants to pay off the house and be done with it.

I have about 100k in my Roth and 250K in a 401K with my wife.

Another 225,000 in cash I use to run my business.

If I was in your position, I'd pay off the mortgage. Mostly for peace of mind and because it's a guaranteed return on investment. It would be great to only worry about taxes, insurances, utilities, etc., but not have to worry about coming up with that mortgage payment every month. Even if your business went downhill, you'd still have a place to live.

From a mathematical and historical perspective, you'd probably do better on average investing the money in a stock index fund, even after paying taxes/capital gains on these earnings. But there is risk involved.

I'd rather wake up every morning knowing that my house is paid for, than worrying about how the stock market and the economy is doing.

If you do pay off your house, and later regret it, you can always take out a home equity loan and invest it in the stock market. But you'll never want to do that. Just take the money that you earn after paying off your house, and invest that in the stock market. That way, you're only investing what you can afford to lose.

Now that we know you are a business owner, definitely pay off that mortgage. Security is that much more important for your situation.