Author Topic: Pay off mortgage or invest?  (Read 653 times)

Niloc

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Pay off mortgage or invest?
« on: September 17, 2019, 08:55:14 AM »
I recently bought a place and have been going back and forth on whether to pay it off quick or invest.  I like the idea of being mortgage free for peace of mind and low expenses once paid off.  Curious if others have chosen to go that route and catch up on investments when expenses are low.  With doubled up payments and lump sums I can pay it off in 2.5 years then have a 75% savings rate going forward.

Fishindude

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Re: Pay off mortgage or invest?
« Reply #1 on: September 17, 2019, 09:06:17 AM »
There are dozens of threads on this forum arguing the pros and cons of pay it off vs keep the mortgage and invest.
I'm in the pay it off and be mortgage free crowd and fully expect someone to respond shortly telling me how dumb I am.



redhead84

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Re: Pay off mortgage or invest?
« Reply #2 on: September 17, 2019, 09:08:31 AM »
Here are two links to two different schools of thought.

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/
https://forum.mrmoneymustache.com/throw-down-the-gauntlet/mortgage-payoff-club!!/

Personally, we made the decision to pay it off when we were about 8 years into a 15 year mortgage. We paid it off in about 17 months, and we did not sacrifice any tax advantaged savings (401K, IRA, HSA) during this time.

I can see the pros and cons for both decisions.

big_owl

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Re: Pay off mortgage or invest?
« Reply #3 on: September 17, 2019, 09:24:15 AM »
aaaaaannnnd, we're off!



There's also another option - why not both?  That's what we're doing.  Invest and pay ahead if you want, it doesn't have to be all or nothing.
« Last Edit: September 17, 2019, 09:26:06 AM by big_owl »

v8rx7guy

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Re: Pay off mortgage or invest?
« Reply #4 on: September 17, 2019, 09:29:21 AM »
I recently bought a place and have been going back and forth on whether to pay it off quick or invest.  I like the idea of being mortgage free for peace of mind and low expenses once paid off.  Curious if others have chosen to go that route and catch up on investments when expenses are low.  With doubled up payments and lump sums I can pay it off in 2.5 years then have a 75% savings rate going forward.

What is your mortgage rate?  I am assuming it's quite low if you bought recently?

NotJen

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Re: Pay off mortgage or invest?
« Reply #5 on: September 17, 2019, 09:31:40 AM »
Whatís your interest rate, how much do you currently have invested, will you be putting anything in investments during that time?

Paying off in 2.5 years is pretty sporty.  Most people canít do it that fast, which changes the equation a little (in my opinion).

I accelerated payments and have been mortgage free for 5 years.  It took me 8 years (would have been 5 or less but divorce got in the way).  During that time I still maxed out my Roth IRA and contributed 15% to my 401k.  At the time I was not planning to retire early and was projecting millions in my accounts when I retired, so I was looking for something else to spend my money on, and the 6% (then 4%) mortgage was it.

If I had planned on early retirement at the time, I probably would have decided to invest instead.  Still, I like having a paid off house, and do not regret it in the least.


BlueHouse

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Re: Pay off mortgage or invest?
« Reply #7 on: September 17, 2019, 09:46:24 AM »
Here are two links to two different schools of thought.

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/
https://forum.mrmoneymustache.com/throw-down-the-gauntlet/mortgage-payoff-club!!/

Personally, we made the decision to pay it off when we were about 8 years into a 15 year mortgage. We paid it off in about 17 months, and we did not sacrifice any tax advantaged savings (401K, IRA, HSA) during this time.

I can see the pros and cons for both decisions.

I clicked the link for https://forum.mrmoneymustache.com/throw-down-the-gauntlet/mortgage-payoff-club!!/  because I wanted to see some happy news today, and the entire 38-page thread, which I've been following for a few years now, can be very nicely summarized on Page 1.  I say "very nicely" because not only are the facts very well laid out in a post by @tomsang , but it's done politely and without the vitriol that many of the following pages carried.   

May I suggest that we use this as a template in how to respond to this type of query in the future? 

Beach_Stache

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Re: Pay off mortgage or invest?
« Reply #8 on: September 21, 2019, 12:04:15 PM »
We were on track to pay off in about 14 years on a 30 year fixed at 3.75%.  It still seemed silly to payoff faster w/such a low interest rate, but we wanted the weight off our shoulders sooner.  I don't consider myself to be able to FIRE until we are mortgage free.  We just re-financed to a new 15 year though after 6 years in this place, and b/c we had paid down a good chunk of the mortgage, and paid some points to get a lower interest rate, we were able to refinance to a 15 year at 2.25%.  As much as I'd love to be mortgage free, it's silly to pay down 2.25% at this point, as we're getting 2% just on our savings account.  So we've shifted and will invest the mortgage pre-payment to low cost index funds and hope that in 15 years when the house is paid off that investing was a better option.  I think for most people on this forum it comes down to feeling more than the numbers.  I think we all know the numbers generally favor index funds over the long run if your interest rate is low enough.  Good luck!

Kris

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Re: Pay off mortgage or invest?
« Reply #9 on: September 21, 2019, 03:38:39 PM »
OP, I definitely suggest reading the threads cited above to get your head around the pros and cons of both. Everyone will have a conclusion that works best for them.

Strictly from a math perspective, all things being equal, with interest rates as they are, it makes more sense not to pay off your mortgage early and invest that money instead.

That said, I am someone who paid off my mortgage early. And I'm glad as hell that I did. For our particular situation, we decided it made sense.

Finances_With_Purpose

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Re: Pay off mortgage or invest?
« Reply #10 on: September 22, 2019, 09:22:26 PM »
Read the threads.  I lean towards paying off early some myself for psychological reasons.  But, here's what we do, for what it's worth: we pay our minimum plus a tiny amount extra each month.  We prioritize investing.  But I then take any additional sums that come our way, including tidbits each month, and put them on the mortgage.  My rule is that our extra funds go to the mortgage, while our stable income goes towards investing.  Seems to be working out well so far, and it's sort of a game - and for whatever reason, more motivating - to find extra tidbits all the time to pay off the mortgage. 

In short, you can tailor it to your preferences and there are always options to split the difference.  There's no one obvious right answer to this particular question (thus the endless debates on here). 


Niloc

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Re: Pay off mortgage or invest?
« Reply #11 on: September 23, 2019, 08:44:28 AM »
Thanks for the advice and links.  I'm still leaning towards paying off the mortgage quick for peace of mind.  I realize I'll be potentially giving up on better returns in the market but hoping over 2.5 years it's not too significant.  I should have mentioned that I still plan to invest 100k over the 2.5 years so not everything is going towards the mortgage.  Once paid off I should be able to make up for any lost returns quickly with my extra savings.