Pay off mortgage or make monthly payments and invest the rest?

[svivian]

Edit, Grand Junction area looks to be the only place that also has a decent size economy to make a living.

Dont even think about it

 

[tboltz34]

The numbers will tell you to invest the extra money instead of pay off early, assuming the interest rate is not crazy. Here is an example on mortgage on a $400,000 home with 20% down ($80,000) for a loan amount of $320,000.

The assumptions are shown in the picture below in BLUE. I did not include taxes and insurance in the monthly payment because you will be paying those no matter what. The S&P500 has historically returned just over 10% but I used a more conservative number of 8%.

In this example, a person can use the extra $183.08 to invest every month or to pay off the loan early and then invest the full $2,000 after the loan is paid off.



After 30 years, this person will have $72,269 extra money in the account if they invested the extra $183.08 right away. For better reference, the $72,269 would be $33,953 in todays dollar.

Psychologically, most people believe they are more secure if they pay off the loan faster. However, I disagree. In addition to having more money, someone could pull from the investment account if an unfortunate event happens (medical, lost job, etc.). The paying off early situation would not have money in the investment account until year 25. Once you pay extra money to the mortgage, that money is gone. Not technically, because you can pull from the equity but that is significantly more difficult.

 

[fngTony]

Dont even think about it

Just put an offer five blocks away from ya

 

[svivian]

Just put an offer five blocks away from ya

You overpaid then

 

[TimberRunner]

We've had this conversation several times. We have a super low interest rate, so it doesnt make sense. As stated, its very individual.

But after reading this thread, do people who want to pay off their mortgage completely (debt averse), do they also share the same attitude towards the volatility of the equity market, avoiding them?

Therefore, moving towards more conservative investments and missing out on the potential 8-10% gains? Instead investing in ultra short term bonds or similar, getting 4.5% returns?

I suppose you could want to eliminate debt and not have any issue with the equity markets, but for some reason, those don't seem on par.

 

[Drillman]

I’d invest it. Especially during this dip. About 5 years ago I had $260k and was going to outright pay off my house just for the peace of mind. I decided to put my feelings aside and just refi to a 15 year 2.25% interest loan and invested the whole lump sum into just a general index fund. It’s made well over $100k in those 5 years.

I’m also doing an additional $2k a month into the fund, that could easily just go to my mortgage. But it simply just doesn’t make sense. The market, in general, should outpaced the 2.25 interest pretty easily over time.

I totally agree. You will be far a head in 20 years with your index funds.

 

[huntnful]

I totally agree. You will be far a head in 20 years with your index funds.

Made $240k in 5 years in the index funds off that initial investment, doing basically nothing. And I’ve paid $24k in interest over that same period. I’d say it was an excellent call and I’m glad I made that decision at the time.

 

[Tahoe1305]

Made $240k in 5 years in the index funds off that initial investment, doing basically nothing. And I’ve paid $24k in interest over that same period. I’d say it was an excellent call and I’m glad I made that decision at the time.

Stop doing math!

That doesn’t “feel” good though .