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 Finance
-
`
Where to Live in the U.S. on a $100K Salary
Earning a salary of $100,000? First of all, a virtual high-five to you! That is an impressive milestone. The next big...
October 26, 2023 -
`
How Weather Conditions Sabotage Small Businesses That Rely on Tourism
You have heard about storms, hurricanes, droughts, and flooding. But have you ever paused to consider how extreme weather conditions could...
October 21, 2023 -
`
Airplane Mode: What Is It and How It Works
In an age where our lives are inextricably intertwined with technology, few features on our devices have become as essential and...
October 12, 2023 -
`
How Does Brad Pitt Spend His Fortune?
Brad Pitt, the Hollywood heartthrob, has long been a household name for his acting prowess and good looks. With a career...
October 8, 2023 -
`
Will the History of Inflation Surge Repeat Itself?
After a tumultuous few years amid the pandemic, many people are beginning to wonder about inflation. With prices on the rise...
September 28, 2023 -
`
Why Celebrities Are Making a Splash in the Liquor Industry
The world of spirits and liquor is experiencing a shift in trends as celebrities are making their foray into the market...
September 21, 2023 -
`
AMD vs. Intel: The Ultimate Showdown
When building a new PC, the age-old choice between AMD and Intel remains a cornerstone. Like the classic macOS versus Windows...
September 15, 2023 -
`
A Day in the Life of Superstar Bella Thorne
When striking the delicate balance between a thriving career and nurturing relationships, Bella Thorne demonstrates that she’s no different from the...
September 5, 2023 -
`
Tips to Help You Get Satisfying Tax Refunds
Income tax season is upon us again and for most Americans, it is a daunting time. For the financially literate, however,...
August 25, 2023
You must be logged in to post a comment Login