Payoff the Mortgage or Invest?

[CBH13]

Will give a couple different view points here. A. its much easier to make the extra payment and having no mortage does indeed feel good. But now is it better/smarter to invest that money . . .1000% but only if you go about it the right way. First off you have to be someone that truly will invest that extra savings into the market and not just use it for some other cost. Second you need to be wise enough in the market to actually make it worth your while.

So if you are someone that will really invest any of that extra savings and you have a decent enough head in the market to do ok then it makes total sense to invest it and will be better in the long term, but for the sheer convenience and keeping up with it most folks will do better paying off this mortgage.

I got all of this advice from a relative with his own investment firm that has been doing this for 30+ years and managed billion dollar portfolios so for him its an easy choice and he puts it all in the market, but average joe not so much.

 

[Vincent Vega]

I had the same decision. I paid it off (when I could still itemize even) and it saved my bacon.
Mortgage interest is a known cost. Stock market income is a hoped for assumption. Everyone's risk tolerance is different. For me it was about reducing/eliminating mandatory cash outflows asap.

I like the idea of liquidity and the thought of tying up money in the house is a little unnerving. I will say that I've been fortunate (knock on wood) with my investments. I think it's going to be a balancing act. I've started paying extra principal but nothing meaningful yet.

I've created an amortization table and the interesting thing is paying off 20% of my mortgage in the first 2 years will save 40% of the interest I would otherwise pay if I didn't payoff any portion of the mortgage early. Interestingly though paying off 20% of the mortgage in the first two years only knocks off 8 years or so off the mortgage. I guess that make sense considering the interest component of the mortgage is front loaded in the early years.

 

[Allsmiles]

We paid our house off after looking at the different options several years ago. Being debt free will give you a piece of mind that is worth a lot for your health in stress reduction. I think the problem most people have is that they start trying to invest and then life gets in the way and they stop and don't start back. Pay off the house and life is just a small issue when something breaks or comes up. Just remember you still have to pay tax and insurance out of your pocket when they are due.

 

[Rambler]

Pay off the house. If things go bad, job loss, death of family member, major down turn in the economy, you will always have a place to live. There is great peace of mind knowing the bank cannot come after my house if I can't make the payments. If you invest the money and a major down turn comes, most of the money the investment made is gone. Once the money is paid to the mortgage, it is money in the bank, cannot be lost due to a stock market crash.

 

[GeauxLSU]

I like the idea of liquidity and the thought of tying up money in the house is a little unnerving. I will say that I've been fortunate (knock on wood) with my investments. I think it's going to be a balancing act. I've started paying extra principal but nothing meaningful yet.

I've created an amortization table and the interesting thing is paying off 20% of my mortgage in the first 2 years will save 40% of the interest I would otherwise pay if I didn't payoff any portion of the mortgage early. Interestingly though paying off 20% of the mortgage in the first two years only knocks off 8 years or so off the mortgage. I guess that make sense considering the interest component of the mortgage is front loaded in the early years.

I got a no cost heloc at prime minus 0.25% to soothe my concerns about liquidity.
Pay it off! Stick it to the man!

 

[jeep78]

If you are thinking of investing, remember you are betting your current income stream will stay or increase until you pay the mortgage off.

There are many, many things that can happen to you that you have no control over that can interrupt or stop your income stream. Car wreck and serious injury, illness, victim of violent crime, hunting accident, falling off a ladder, etc., etc.

Liquidating your investments to pay your mortgage would not be financially advantageous due to market conditions at that time , in all likelihood.

Pay your mortgage and then "pay yourself" each month with what would normally be your mortgage payment.

 

[romans1212]

It’s all about cash flow. I’ve wrestled with the same question even to the extent of using a HELOC. As I see it, balance is key so I do both. I invest and I pay extra on my mortgage as my cash flow allows.

A few things to remember for you and our ODT family:

A loan of 4.5% is among the best you’ll ever get so from a “numbers” perspective, it makes sense to keep it and grow your cash somewhere else. Well placed investments should yield better than 4.5%.

Money in your home is not easily liquidable so make sure you don’t need the money in your paid off home. A refi loan may be higher interest and is typically a longer, laborious effort.

The stock market is volatile as it has ever been with large swings. Just because the market goes down doesn’t mean your portfolio will eventually go back up.

The first thing you mentioned in your post is that your hearts desire is to pay down/ off your home. Regardless of “the numbers”, this is what your goal is and there isn’t anything wrong with that.

Make sure your credit card debt is paid off first.

Make sure you have an adequate emergency fund depending on your monthly nut.

Make sure that you are investing in 401k or max your Roth or Traditional IRA

Make sure you and spouse have adequate life insurance

Decide whether college tuition is an issue

Invest some money for short term savings

Put everything else in your mortgage!

Balance is key!

 

[Vincent Vega]

Good advice y'all and I certainly have some things to think about. I appreciate it.

 

[albatros43]

Pay off the house!

 

[romans1212]

I got a no cost heloc at prime minus 0.25% to soothe my concerns about liquidity.
Pay it off! Stick it to the man!

Where did you get the HELOC? Dang!