Pay Your Mortgage Early or Start Investing? Your Choice Would Boil Down to this One Factor
So, you’ve bought a house and knocked off an item on the list of your long-term goals. Now, your next focus is paying off the mortgage you took out to afford your home.
But what about other financial goals like growing your wealth or saving up for retirement? If you’re wondering whether you’d be better off tackling your mortgage first or starting an investing habit, you might want to listen to the advice of certified financial planner Brian Fry.
For him, your decision should come down to interest rates. Putting things in simple terms, it’s better if you pay your house loan first if your mortgage rate is higher than what you’ll make investing your cash.
Best Things You Can Do
After running a simulation that considers various scenarios for a homeowner, Fry found that the best course of action you can take is to refinance your mortgage to a 15-year one at the interest rate of 3.19%.
This is because the rate of historical average stock market return is lower than the average mortgage interest rate. Thus, paying off your mortgage early after refinancing, which further drives down the interest rate, is the most sensible option for now.
Worst Things You Can Do
Meanwhile, Fry warned people against spending their extra money instead of investing. Doing so would not get you closer to your goal of building wealth.
He also reiterated the perks of refinancing your mortgage. Even if you aren’t planning on paying your house loan aggressively to be debt-free earlier, you’d still benefit from the lower rates you’d get by refinancing.
You can save a lot of cash as you’d be left with a significantly smaller monthly payment once you’ve been approved for a new mortgage. Fry said that refinancing is a particularly good option for homeowners that have no plans of moving any time soon.
Running the Numbers
The certified financial planner got to these conclusions after making calculations based on a scenario where a homeowner nets an extra $24,000 annually after taxes. The homeowner is already 15 years into their mortgage with over $282,000 left to pay off at a 5.84% interest.
The simulation assumed that the homeowner already has other aspects of their finances covered from paying off other debts to having an emergency fund. Another assumption is that they’ve diversified their nest egg as well.
That said, Fry notes that paying your mortgage early or investing shouldn’t be your top priority yet if you haven’t gotten your overall finances in order.
More in Smart Investments
Here’s How to Get a Lower Mortgage Interest Rate in the Midst of a Market Meltdown
This pandemic that was first discovered in Wuhan, China has made it even harder to survive every day. Before this pandemonium...March 31, 2020
Justin Bieber’s New Self Care Habit Involves This Unusual Musical Instrument
Justin Bieber has notably been more open about his personal life and struggles lately. And he just shared some more details...March 31, 2020
Everything You Need to Know About Surviving a Contagious Pandemic When You’re Living With Family
With most people being stuck at home due to the coronavirus, some would find themselves in close proximity for an extended...March 31, 2020
How Billionaires Are Keeping Themselves Busy Amidst the Coronavirus Outbreak
As the novel coronavirus continues to spread at a rapid pace across the world, people are encouraged to practice social distancing...March 31, 2020
Kanye West Is Helping His Hometown Fight a Deadly Disease In This Meaningful Way
Kanye West may be a controversial public figure but he’s still proving to be among the most generous ones as well....March 31, 2020
Small Business Owners Can Use This Resource to Stay Afloat During a Global Pandemic
As giant corporations continue to lose billions in the value of their stocks, small businesses are also taking blows from the...March 31, 2020
Be Wary of Scams! How to Avoid a Bad Business Loan That Could Put Your Company at Risk
One way of financing a company is by taking out loans from a creditor. Thus, it’s imperative that entrepreneurs know the...March 31, 2020
A PR Strategy Could Make or Break a Business, Here’s How You Can Create One Yourself
With a lot of other small businesses being launched these days, it can be hard to make one’s own to stand...March 31, 2020
How to Build a Successful Business from Scratch, According to Those Who’ve Done It Before
Building a business from the ground up is a daunting endeavor. Luckily, there is no shortage of tips and advice available...March 31, 2020