Should we pay down our mortgage?

[ALSaver]

Our first time to participate but we have been reading posts since finding MMM while looking for advice on financial freedom. So here is our question we'd like to get input on. My wife and I are 36 and 40 years old respectively. We have zero personal debt outside of our mortgage. Balance is $407,000 at 3.5% fixed for 30 years (currently 1.5 years into the 30 year mortgage).  Current value if home is $580,000. We have excess cash flow after both contributing the max to both of our 401ks and additional savings outside our 401ks. It would be nice to truly have zero debt by making extra principal payments to the mortgage. But, would it be wiser to save more (likely mutual funds) or start paying down our mortgage?  Thoughts?

[NathanDrake]

It really depends. At today's lower rates, I'd be inclined to pay the minimum monthly and then invest the rest, which should yield a higher rate of return over the next 30 years if you're patient.

But for some, the piece of mind in having a house with no debt offsets the financial uncertainty of market returns for the next 3 decades.

[Another Reader]

I have a similar mortgage amount that's 18 months in at 3.125 percent.  I would not even consider paying it off.  Over the remaining term, I will likely make a much higher rate of return on the rentals and equities that money is indirectly paying for and the mortgage is tax advantaged.  It's a nice feeling to have no debt, but it's an even nicer feeling watching your assets grow and making you FI a lot faster.

[Breaker]

Hi,

I don't think that you can make a mistake whether you pay off you mortgage or invest.

I would be inclined to do both.  I would double the *principal* part of the payment for 5 years.  That should mean that you have in essence paid 15 or so years off your loan.
(The math wizzes on the forum can tell you exactly.)  Any other extra money could be invested.

That way you will still have the tax write-off and significantly reduce your debt and the time needed to pay off the loan.  Which for would give me a real sense of satisfaction.

Jan

 

[m^3mmm333]

Al,

Investing in your mortgage at 3.5% is equivalent to buying a bond at 3.5%. The return is even lower if the interest can be deducted... It's your call, but I would invest it.

[Tyler]

What percentage of your net worth is your home equity? 

If it's high, I'd prioritize investing. If it's low, paying down the mortgage seems perfectly reasonable.

[Cheddar Stacker]

I have a similar mortgage amount that's 18 months in at 3.125 percent.  I would not even consider paying it off.  Over the remaining term, I will likely make a much higher rate of return on the rentals and equities that money is indirectly paying for and the mortgage is tax advantaged.  It's a nice feeling to have no debt, but it's an even nicer feeling watching your assets grow and making you FI a lot faster.

+1. Invest.

[socalwkr]

I would make sure you are maxing out your Roth as well.  We are in a similar boat with a $391k mortgage at 3.75%.  Mathematically it is probably always going to pencil out towards investing.  However, I would at least make a minimum extra payment per year or dedicate a certain amount extra per month.  I find that having a debt to pay off is more motivating sometimes then just the idea of amassing cash.