We’ve long been proponents of thinking twice before paying your mortgage off early. With long-term mortgage rates at 3% or less, the decision to invest instead of pre-paying that debt seemed clear for younger investors. Interest rates are now holding steady above 6%, and the decision isn’t so clear anymore. With mortgage rates at levels not seen since the early 2000s, does it make sense to prioritize mortgage debt before investing? Here’s what you need to consider before paying off your mortgage early.
Great and timely content as always Daniel. I just purchased a home that closes in 2 weeks. I did the math on pausing all savings and extras but minimum 401K to match and we could pay off our 425K loan in just under 7 years if we went full Dave Ramsey. Mathematically, even with 22 times over at our ages, it would still net us more in interest savings than retirement return but we decided the lifestyle changes weren’t worth it for a 7 year sacrifice with young kids. Gonna do it in 15 instead. Thanks for the info.
Dave Ramsey probably wouldn't like folks picking and choosing what to follow, but we're big advocates of tailoring rules and guidelines to fit your own financial life. That's a big reason why the FOO is more flexible and not as rigid.
J Wade. I like you plan. However, You can't pick and choose the parts of Dave Ramseys plan you like. It's not just risk, it's disciplined savings and diversification too. Just make sure you put the full % you were going to put into your mortgage payments into savings, not lifestyle and you will be in a good place in 15 years.
Agree to disagree here. I know Dave is anti using his plan partially but I’m a proponent of tailoring all things in life to my life. I don’t actually use his plan beyond getting out of debt though and I’m glad I did that a couple of years ago. I agree with the rest of your post. We won’t be saving all that money as it would have been pulled from our lifestyle but we are going to continue our 22% in 401Ks, and max the IRAs in addition to the 529s.
I have run my numbers as a newly single 45 yo person with a new >6% mortgage and investing works out a little better as long as returns are over 6%, but it is a strange position to be in: significant retirement savings already, higher income, kids’ college is in the past, no high interest debt, low living expenses except the mortgage (no dependents), and not a lot of equity in an expensive home (vs the other two homes I owned before and bought in 2001 and 2011). For me, it comes down to risk. I can’t put money in savings at a return > my mortgage interest, and being one person responsible for everything, I want the mortgage out of my life as soon as practical. With my employer match, IRA, and 401k, I will still invest $40k/yr, although that is <20% of my income. One thing is certain, the advice from the 2-4% mortgage rate says doesn’t apply and rates have only gone up since I closed a little over a month ago.
Very true! For those with a large amount of retirement savings who can invest plenty while also prioritizing the mortgage, there's not a big opportunity cost. As Brian often says on the show, around age 45 or later is when you start considering paying more on the house if you are in Step 9 of the FOO.
Great and timely content as always Daniel. I just purchased a home that closes in 2 weeks. I did the math on pausing all savings and extras but minimum 401K to match and we could pay off our 425K loan in just under 7 years if we went full Dave Ramsey. Mathematically, even with 22 times over at our ages, it would still net us more in interest savings than retirement return but we decided the lifestyle changes weren’t worth it for a 7 year sacrifice with young kids. Gonna do it in 15 instead. Thanks for the info.
Dave Ramsey probably wouldn't like folks picking and choosing what to follow, but we're big advocates of tailoring rules and guidelines to fit your own financial life. That's a big reason why the FOO is more flexible and not as rigid.
J Wade. I like you plan. However, You can't pick and choose the parts of Dave Ramseys plan you like. It's not just risk, it's disciplined savings and diversification too. Just make sure you put the full % you were going to put into your mortgage payments into savings, not lifestyle and you will be in a good place in 15 years.
Hey Paul,
Agree to disagree here. I know Dave is anti using his plan partially but I’m a proponent of tailoring all things in life to my life. I don’t actually use his plan beyond getting out of debt though and I’m glad I did that a couple of years ago. I agree with the rest of your post. We won’t be saving all that money as it would have been pulled from our lifestyle but we are going to continue our 22% in 401Ks, and max the IRAs in addition to the 529s.
I have run my numbers as a newly single 45 yo person with a new >6% mortgage and investing works out a little better as long as returns are over 6%, but it is a strange position to be in: significant retirement savings already, higher income, kids’ college is in the past, no high interest debt, low living expenses except the mortgage (no dependents), and not a lot of equity in an expensive home (vs the other two homes I owned before and bought in 2001 and 2011). For me, it comes down to risk. I can’t put money in savings at a return > my mortgage interest, and being one person responsible for everything, I want the mortgage out of my life as soon as practical. With my employer match, IRA, and 401k, I will still invest $40k/yr, although that is <20% of my income. One thing is certain, the advice from the 2-4% mortgage rate says doesn’t apply and rates have only gone up since I closed a little over a month ago.
Very true! For those with a large amount of retirement savings who can invest plenty while also prioritizing the mortgage, there's not a big opportunity cost. As Brian often says on the show, around age 45 or later is when you start considering paying more on the house if you are in Step 9 of the FOO.