Should You Pay Off Your Mortgage Early or Invest the Money
In the last few months I’ve been in the process of buying a new house and as a result I’ve been considering is it better to pay off my mortgage early or invest the money towards retirement? So in this article I will run the numbers and see which is better.
Pay Off Your Mortgage Early
In the first example we will take a $100,000 mortgage and apply an extra $250 a month towards the payment of a 30 year fixed mortgage. By doing this I found that it will cut 13 years off the length of the loan and save me over $38,000 in interest payments. On top of that if we would in vest the extra money and the mortgage payment over the next 13 years and earn a conservative 8% return on our money we would end up earning around $135,000 as a result.
Invest The Money
Now let’s see what would happen if we would just invest the $250 strictly towards retirement. By doing this we would earn around $870,000 over a 30 year period. That’s over $730,000 more than the first option of paying the mortgage off first and investing the money afterwards.
Now you might be wondering how could this possibly be? The reason is because the investment in the second example had more time to compound on itself. In fact the investment in the second example had 18 extra years to compound on itself.
The Results
In the end when it comes down to it investing your extra money may be the most effective route to go rather than making extra payments on your mortgage. However, not every example is as perfect as this one. Their are a few variables that you need to consider to make this effective. Things such as the rate of return your money earns, and how much money you apply towards the mortgage all make a big difference when your considering should I pay my mortgage off early or invest it. So take some time to run your numbers and see which options works best for you.
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