Don’t Know if You Should Invest or Pay Your Mortgage Early? This Financial Planner has the Best Advice for You
While getting a mortgage is a way for many to afford their own home, it’s also a debt that can prevent them from building wealth.
If you find yourself in a similar situation, you might have thought about paying your mortgage early to be rid of debt that might be holding you back. But is it the best choice especially if you’re trying to find the best use for your money?
Or would investing while making minimum mortgage payments be a better financial decision in the long run? Here’s what certified financial planner Brian Fry has to say.
According to Fry, your best option in this scenario is to refinance your mortgage while investing your money more aggressively. Switching to a 15-year fixed mortgage that comes with a 3.19% interest rate would be a wise choice considering that the expected rate of return in the stock market is higher than that interest rate.
Your second-best option is to refinance and then pay your new mortgage aggressively before investing. This route is a good choice if you want to keep your financial moves on the conservative side.
Fry also recommends simply paying your mortgage aggressively without refinancing at all. His calculations show that paying an extra $24,000 toward your balance a year would mean you can be debt-free 99 months in advance.
Fry also warned people against making the following choices.
He discourages you from spending your extra cash instead of putting it towards aggressively paying your mortgage or investing.
Another bad decision is not refinancing and then continuing to invest your money. This is because you’d likely get stuck paying a mortgage that has a higher interest rate compared to the market’s expected rate of return.
The Bottom Line
If that’s the case, Fry says it’s best if you pay off your mortgage first.
In the end, paying more attention to interest rates can help you make better choices regarding your finances.
For example, it’s typically better to pay down any debt you have before investing more if the interest rate of your debt is higher than what you’ll make investing your money.
Things would change though if you consider refinancing your mortgage. Fry recommends shopping around to find the best rates at the moment whether or not you decide to pay your housing loan aggressively afterward.
He also emphasized the importance of considering other factors like how far from retirement you are and if you have other high-interest debts to pay.
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