Should I Pay Off My Mortgage Early Or Invest – The Answer
If you are wondering should I pay off my mortgage early or invest, the answer can be very clear. However, you need to know what to look at when you make that decision. Simply put, as you can imagine, a simple yes or no will not suffice in general as everyone’s circumstances are different. The first thing you need to consider is how much of a deduction are you getting for your home on your taxes each year and is that important to you. In the case of my parents, they get a very minor deduction, thus keeping their mortgage in place for that tax deduction is not really a deciding factor. However, for some people, that can potentially be a large incentive to invest instead. Another thing to consider when asking should I pay off my house early or invest is how much do you owe on it. Also, how does that amount compare to your overall money on hand. To analyze this, let’s begin with the issue of an emergency fund. Simply put, do you have one? If you don’t, then you should keep a portion of some of the money you have on hand for an emergency fund. The general rule of the thumb I heard growing up was about six months reserve for all your monthly expenses. I personally am more cautious and prefer to have an eight to twelve month emergency fund. The reality is that I just sleep better knowing I am protected in case something happens.
Now, of course, if you do have a solid emergency fund and you are wondering should I pay off my mortgage or save, you are going to need to look at other factors. For example, you will want to see how much you save by paying off your home mortgage sooner than waiting. In other words, how much would you save in terms of interest paid. From my experience, if you have owned for a long time, more of your payment appears to go to principal and less to interest. Thus, as I discovered when I looked into it, there wasn’t much to gain by paying it off early in terms of savings. In other words, I could get a better rate of return on a treasury note backed by the federal government than I could “make” by paying off my mortgage early. However, because rates of return change all the time, you will want to explore your options. Also, keep in mind that there is risk involved in investing. Some are more secure options than others. If you are considering investing, I would encourage you to explore a favorite of mine, the www.fidelity.com site. I am a person who doesn’t like much risk when I invest, so I like savings accounts and certificates of deposit to be in the mix.
Nevertheless, at the end of the day, you are going to have to become your very own should I pay off my mortgage calculator to determine what is in your best interest. Also, if you have money saved, you should compare your debt to see what makes the most sense. In other words, is it smarter to pay of your mortgage or student loans? Each case is unique, but one that should have a relatively straightforward answer. Also, you may have credit card debt at an astronomical rate. If you are carrying a balance from month to month at such high levels, paying off those cards first might be the best move you could make.
Another consideration when asking should I pay off my mortgage or invest can be dictated by the contract you signed. Simply put, some mortgage notes may have a prepayment penalty. Thus, you will want to know if yours has such a thing. It also might have a service charge to pay it off early. That is another cost consideration for you to consider. While mine does not have a pre-payment penalty, it does have a nominal fee for processing the early pay off. Thus, you need to know all the costs associated with paying your mortgage off early. Furthermore, you need to know more about what you might specifically do with your money. Thus, you may want to read over resources like the fidelity.com page to learn more. Once you have an idea of the type of investment vehicles you might pursue, I feel you can make a better decision. With that said, keep in mind that some investments can be risky and you could lose your principal amount. At the end of the day, the decision you make regarding should I pay off my mortgage early or invest might come down to how you feel about owning your own home outright. I know my father never liked owing anyone money. Thus, for people like him, it might be the best decision to pay it off early, despite potential upsides in investments.
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