Invest Or Pay Off Mortgage?
The choice between paying off your mortgage or investing your disposable income is tricky, because there are benefits on both sides of the argument. In addition to doing the math and calculating rates of return, you also have to consider risk if you’re going to make an educated decision. By weighing the pros and cons of your choice, you can make the right decision for you and your family.
Benefits Of Paying Down Mortgage
Extra mortgage payments come with many benefits, including shortening the term of your loan and lowering the amount of interest you pay. These advantages are attractive if you’re budget conscious and risk-averse. If you’re nearing the age of retirement, paying off your mortgage means extra financial freedom in your golden years. Also, if you live in a state where you can file a homestead declaration, or the laws protect the equity in your home, your home can serve as liability protection for your nest egg. The benefits of paying down a mortgage are hard to quantify, since many come from individual situations.
Continue reading to reveal the reasons to keep a mortgage.
Reasons To Keep A Mortgage
If you need your disposable income to pay medical bills, save for retirement, save for kids’ college or to buy a new vehicle, it may make sense to keep your mortgage. You do not want to go further into debt to fund any of these items or reach the age of retirement without any nest egg. Your mortgage interest rate may also be much lower than the interest rate charged on credit cards and other forms of consumer debt. As a result, keeping your mortgage and instead investing money into savings or other securities may make sense.
Continue reading to learn about some of the significant benefits investing brings.
Benefits Of Investing
Investing in stocks, bonds, real estate, and businesses among other investment vehicles can yield compound growth and wealth over the long term. You must invest steadily over the long-term to realize the full power of compounding on your investment portfolio. Paying into your retirement accounts, for instance, can yield a greater rate of return relative than the interest you pay on your mortgage. You can leverage the benefits of investing to your advantage and live a comfortable life, even without paying down your mortgage early.
Although investing does provide a variety of benefits, there are also some downsides to this avenue. Continue reading to learn about the potential disadvantages of investing.
Disadvantages Of Investing
There are inherent risks associated with investing in the stock market, real estate, and other instruments. The disadvantages of investing include the potential loss of your initial investment and negative rates of return, which can ultimately lead to poor outcomes. These risks often justify an individual paying their mortgage down early. So, if you’re going to invest, it makes sense to pick a strategy to match your risk profile. Otherwise, you stand to lose capital and your ability to retire in the future.
Continue reading to learn more about determining which option is the best one for you.
Which One Is Best For You
As you can see, there are pros and cons associated with investing versus paying down your mortgage. The decision is a function of your disposable income, life situation, occupation, and retirement objectives. Sitting down with a qualified financial planner will help you determine your risk appetite and the amount of money you can invest, given your budget and need to pay down your mortgage. The decision you make should be part of an overall strategy designed to maximize your financial well-being and future ambitions.
Paying off your mortgage is viewed by many as the safe choice, but others think investing makes mathematical sense, and accepting a certain level of risk is worthwhile. The choice ultimately rests on your risk tolerance and overall financial goals, and choosing which one is best for you and your family is a wise decision.