Should You Pay Off Your Mortgage Early or Invest? | Financial Advisor Explains
Should You Pay Off Your Mortgage Early or Invest? | Financial Advisor Explains
In this video, we go over the best way to go about where to put your excess cash when you have an existing mortgage. What is the optimal decision? Is it really smarter to invest the money instead of paying off the home? What are the other intangible factors? All that will be answered today.
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What's your current mortgage rate and are you considering paying off your mortgage early or investing? PS: Be aware of the spam/scam comments in the below comment section. I just purged a bunch, but there will inevitably be more that pop up. If theres ever a comment with a lot of likes but they're referring you to some random person's name and promises of returns…its a scam.
My mortgage is 3% , tbills pay me 4.7% monthly. My mortgage is tax deductible and there is no state income tax on tbills. When tbill interest goes down I’ll pay off the mortgage
Something these financial experts tend to forget early on in the amortization you're paying more interest than you are principal. In that instance, it's not really a 3% loan. Even almost halfway through on my mortgage if I pay 15,000 it saves me 10,000 in interest.
WOW! Love the data. So much work and I appreciate that.
Pay off your mortgage. The stock market can go down. That 10% return is not guaranteed. Most analysts agree the market is overvalued and likely to decline or have anemic growth for the next few years. Especially if your interest is 5+%, pay that mortgage off.
My interest rate is 2.5% 30 years, still I pay 1000$ per month more to payoff the loan in 13 years approx. because I would like to sleep peacefully with no loan on my shoulders. It’s just my personal preference
Locked in a 2.25% mortgage in 2021. Feels almost like free money, lol
I have $47,000 left on my mortgage. I'm in no rush to pay it off. My rate is 1.5%. I have that $47,000 invested making much much more for me.
I paid off my mortgage in 9 years of 30 year mortgage!
2.175 here. I'll pay off the house when I retire. Investing for now.
There's another source of returns to mortgage prepays in addition to interest savings. This comes from the increased equity share in home value that the extra payment secures — PLUS CAPITAL GAINS on that share. In recent years, home values have grown considerably faster than 3%/year, & your equity share captures a piece of that. You can cash out this value immediately if you sell the house.
Another factor to consider is the TIMING of prepays. A $500 prepay made early in the life of the loan avoids much more interest than the same $500 payment made years later. The nominal interest rate on the loan is just an AVERAGE when applied to prepays made throughout the life of the loan. Returns to each specific payment will be different. This may offset any advantage from compounding investment returns.
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If mortgage rate is 3% in some cases it might be equal earning more than 6% other investments. E.g. if your investment is earning 6% and you are paying 50% tax your net income would be 3% plus you are taking the risk of investing going below 6%
I just sold my Tesla stock for $157,000. The most money I've ever made in my life. I learned about high yield savings at Fidelity so I was Raking in more than $700 per month but the rates are being cut. I struggled between buying a house or reinvesting in another stock…
I stumbled upon ETFs and Mutual funds. When I looked at SCHG I found it had risen 41% in the last year, 152% in 5 years, and an average of 57% every year for the last 14 years!!!
2 days ago I loaded $190,000 in 3 different ETFs. SCHG, ILCG, ILCG and FXAIX. Yesterday alone I gain $2,600. Yeah…I'm definitely putting that money in the market!
Let’s just stop with this nonsense.. most Americans are a layoff away from losing their house, and the older you get, the more at risk you are to job loss.. let me simplify this; I’ve never met a person who regretted paying off their house.. NEVER….
Paying off debt IS an investment. That's my TED Talk, any questions??
Sp turned 30 percent this year. Unless you have that percentage rate, it didnt make sense to pay down this year.
Taxes ?
The problem we have is because Most people always taught that " you only need a good job to become rich " . These billionaires are operating on a whole other playbook that many don't even know exists.
This information is worth it’s weight in gold
Thank you so much for potentially saving me more then 6 years of debt
Let's not forget the tax benefits 8% – tax is closer to7%. Also remember inflation so probably an other 20-30% discount on the interest…
How do you pay off the principal of the house faster rather than your payment going all towards the interest?
I’m be variable you didn’t take into account is inflation and how that affects the value of the dollar.
Don't you lose out on the tax benefit of mortgage interest though? So paying your mortgage quickly isn't the same as having an x% rate of return (x = mortgage interest rate).
I didn’t really understand what amortization was when I bought my house in 2008. I really figured it out quickly when I refinanced my mortgage in 2013 and realized that I hadn’t even paid 20k of the principal balance after 8 years and decided then I was going to aim to pay off the mortgage in 15 years from the original loan date. I’m making my last mortgage payment in January which is 16 years from when I bought it which is close enough to 15 years to save me quite a bit of money and priceless to my peace of mind.
I sold my house and bought a new one. I was going to pay cash but then I realized I was getting 5.5 on T bills. My new mortgage rate is 3.5. With T bill rates coming down should I just pay my house?
This is that mathematical paradox where human emotion can’t be taken into account. Paying off your home gives you peace of mind
Hindsight is always 20/20. I sold a rental property a few years ago and paid off my personal mortgage . Had I invested that money in Nvidia I would have over $600,000 today. I don’t feel so bad though a bird in the hand is worth two in the bush.
damn… 7%???
Great video!!!!
Great video, scam comments.
Always go debt free if you can. Debt is stupid.
My mortgage is 12%🤦
I have 4 rental homes, two of which are paid off. The other two have small mortgages (160k & 165k) at low rates of 3.65% and 4.5%. I am currently sitting on 750k in cash that has been earmarked for future investments in either more rentals or possibly a business. We have over $1.6M in a 401k, 150k in crypto, 180k in a brokerage account, an additional 250k in checking and zero debt aside from our primary mortgage and the two rental mortgages. I currently have the 850k in high interest accounts earning 4.5%. If I buy two or three more rentals cash I will make about 6-7% on that 750k. If I pay off the two rental mortgages then I would increase my monthly cash flow by $4200 per month which would be about a 14% return on that 320k. I am conflicted as to what the right move would be.
Good video and I like how he brought up the fact that paying off your home isn’t always a financial decision. The freedom was worth any stock market gains we could have made. Also paying off your loan is guaranteed, the stock market isn’t. The freedom of no mortgage allowed my wife to stay at home with the kids and for our savings and investing to explode further down the line.
Wow this is like looking at the alternate version of techlead
How about don’t buy a house instead dump all your money into investments then in 10 years use that money to buy a house in cash till then rent cheap and save
Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got to talking about investment and money. I started investing below the $100k mark and in the first 2 months, my portfolio was reading $234,800. Crazy right!, I decided to reinvest a huge percentage of my profit and it got more interesting.! For over a year we have been working together making consistent profit just bought my second home at the beginning of summer.
I took a part time job for 2.5 years and used 90% of that income to pay down the principal. Went from a 30 year to paying off the mortgage in 10 yrs, which lined up with my retirement goal.
Not mentioning that paying mortgage off – then reinvesting that amount that was mortgage payment to now be invested is a miss in this analysis
How about payoff then refinance???
There is very little benefit by pre-paying mortgage loan after the 50% time has elasped, say after 15th year in a 30 year loan.
Because the instalments after the halfway mark are mostly principal and less of interest. Only the bank benefits by getting their money back sooner.
Very informative but finding out how much I’m actually paying for my house kinda made me sick
Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got to talking about investment and money. I started investing below the $100k mark and in the first 2 months, my portfolio was reading $234,800. Crazy right!, I decided to reinvest a huge percentage of my profit and it got more interesting.! For over a year we have been working together making consistent profit just bought my second home at the beginning of summer.
I think it's time to make it more appealing for potential buyers. Real estate can be quite the rollercoaster! the stress and uncertainty are getting to me. I think I'll cut rents to attract potential buyers and exit the market, but i'm at crossroads if to allocate the entire $680k liquidity value to my stock portfolio?
Something that most people don’t consider is that sometimes life gives you a tragedy or curveball. A sudden loss of a spouse, a job loss, injury or illness that takes away income. A paid off mortgage is the best piece of mind during the hard times.
You left out a huge factor, the mortgage interest deduction. Most homeowners, certainly those that are still working, greatly benefit from this deduction, making the effective interest rate on mortgages even lower. This only tilts more in favor of investing instead of early payoffs.
Max efficiency would state you should focus on the highest percent, whether it’s the mortgage rate or market rate.
But I think a big factor that’s never talked about is “peace of mind”. Markets have risk, mortgages don’t. The market may have a higher rate now, but a recession could hit, and those years spent investing is basically wasted.
Because of this, I’d focus on mortgage first, unless the market rate is WAY higher, like 4%+
If your mortgage interest rate is relatively low 3%–4%, hmm investing in assets that offer higher returns stocks or real estate with ya mortgage could provide a greater long-term financial benefit. of course with the help you a financial advisor