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.
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.
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.
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.