Pay off house or invest?

[lifepopsicle]

My boyfriend and I just bought a house in a growing area. We have a 30 year mortgage with an interest rate of 3.65%. We are saving enough to double, or sometimes triple, our mortgage payments each month. But, with the stock market being known to deliver much higher returns, is it better to pay off the house faster, or invest our extra cash in stocks, bonds, mutual funds, index funds, etc?

Thank you!

[tomsang]

https://forum.mrmoneymustache.com/investor-alley/paying-off-mortgage-early-how-bad-is-it-for-your-fi-date/msg102262/#msg102262

Mathematically you are better off keeping the mortgage and investing.

[willn]

When I hear "boyfriend" and "bought a house" my risk antennae go up.  Lots can go wrong with owning real estate when you aren't married. Are you on the mortgage? Title? Neither? Do you have a written agreement with him about how the equity is shared and to be disposed of in the event one of you wants out?

Risk can be mathmatically calculated also, and figured into your investment return, so...

This matters because your risk increases.  You break up, he wants to keep the house, you don't, he promises to pay the mortgage but the bank won't let you off the note, (and they won't).  Now what?  You stay on the note and depend on him not to get sick, fired, addicted, married to someone else?

When married people break up, there's lots of legal precedents defining what can happen to split property. For non married couples, not so much.

So my answer to your question would be, pay off the debt as soon as you can to reduce your risk.  Bigger picture would be to get married, or straighten out the ownership questions in writing, with an attorney.

Hey, I know, couples never break up ;) and maybe he's your forever guy.  I've just heard too many stories of people in a bad spot because of the exact situation you describe.  If my daughter asked this I'd be a lot more stern :)  IF you want to continue along this, maybe have him quitclaim to you and you refinance only in your name, or vice versa. Sounds like you both make money enough to manage that...Then the other person can invest their money in stock funds for the hopefully shared future while the other builds equity in the home.  If you get married, then you pitch it all in the joint ownership pot...

[lifepopsicle]

Hi willn, I think your concerns are certainly valid. To answer your questions, both of our names are on the mortgage and title and we both have 50% ownership of the house with rights of survivorship.

We do not, however, have a contract about what we would do in the event of a split, so that's good advice and something I'll bring up with him. Although, we've been together for a long time and I don't think it will be too long before we tie the knot.

In terms of pure finance, I have to agree with tomsang and the comments in the link he provided - we will (most likely) make more money if we invest.

[StarryC]

I was with you Willn, until you said to pay off the loan to minimize the risk!  I thought the exact opposite.
If you succeed in paying off the loan, and then break up, you still have to sort out equity.  Either he would need to pay you your share (What are the odds he has that ready to go?)  or you need to sell and spit the proceeds or he pays you rent or "war of Roses"?  All very messy.

If you don't pay it all the way off before you break up, you still have all that mess, and your only investment is the house.

If you invest in the market independently and break up before the house is sold, you still have to sort out the equity, but now if that is a long, expensive process, you at least have some other assets to rely on or fund the process with.   

[OzzieandHarriet]

Relationship aside, I believe it's better not to pay off the mortgage early, especially at that low interest rate. Once you dump the money in there, it's not doing anything for you, and getting it out if you need it can be a pain. Yes, you can open a HELOC, but if you are having financial problems it will cost you and/or you may not be able to get one at all. Not to say that you WILL have financial problems, but it's always best to consider worst-case scenarios.

[lifepopsicle]

Dmy0013, Thank you, that is great advice! Especially the last bit about the emergency and home repair funds. I think my question has been answered and I will continue paying regular mortgage payments (yes, it is a fixed rate) and investing the remainder. I appreciate everyone's thoughts and input.

[MoneyLifeandMore]

Since it is a fixed rate I personally would invest. If debt really gets you down, and I mean really really gets you down, then the weight lifted when you pay off a mortgage might make the mortgage pay off a better deal mentally (but probably not financially). However, I'm a more logic driven person and that makes investing a no brainer in this situation for me.