Should You Pay Off Your Mortgage or Invest?
If you have some extra cash on hand, what do you do with it? If you plan to make that money work for you, perhaps you've thought about investing or paying off your mortgage.
Which choice yeilds the best return? This has certainly been a heated debate, with passionate responses on both sides of the question. Either way, it’s a decision that can have serious consequences financially.
Which way should you go?
You need to consider these variables:
- Your home’s current market value
- Your mortgage interest rate
- Home appreciation in your area
- Your income tax rate
- Expectations for inflation
- An assumed rate of investment return
Justin Goodbread, a certified financial planner, analyzed these variables, using national averages for these parameters to compare various scenarios between investing and paying off a mortgage.
As it turned out, the math favored investing. But the math isn’t the only thing you should consider. It also depends on your own situation. Goodbread offered two rules of thumb to decide:
You should pay off your mortgage early if you’re a conservative investor, in a low tax bracket with a high mortgage interest rate.
And you should invest if you’re a more aggressive investor, in a high tax bracket with a low, 30-year, fixed mortgage interest rate, and if you’re younger than 50.
What are some reasons to keep your mortgage?
- Maintaining liquidity. Paying off a mortgage will leave you without a cash cushion in an emergency.
- Your home’s value isn’t affected by a mortgage. The value of your home will increase over time. But this will not affect how much you owe on your mortgage.
- Mortgage interest is inexpensive. Your mortgage is secured by your home’s value, and this keeps interest rates much cheaper than credit cards and personal loans. Even better, the interest is tax deductible.
Of course, in the end, the choice of investing vs paying off your mortgage is one you should make carefully. Join us every week for more real estate advice and local Albuquerque articles.
Search for your dream home in Albuquerque with our easy to use home search. Check back on our blog every week for more real estate advice and local articles about living in Albuquerque. And make sure to follow us on Facebook for up to date real estate news for Albuquerque and surrounding areas.
HOT HOME LISTING OF THE WEEK!
5000 College Heights Drive NW, Albuquerque, NM 8712 $425,000
4 Bedrooms / 3 Bathrooms (2 full, 1 half) / 2850 Square Feet
Casual elegance abounds in this beautiful custom home with private courtyard & dramatic functional floor plan featuring 4BDR/2.5BA/3CG! Oversized great room features coffered ceiling, tile flooring, gas fireplace, 8ft stacking patio doors that open up to the amazing outdoor living space w/wood fireplace & covered patio to entertain or relax & enjoy the best of New Mexico weather! Gourmet kitchen features granite countertops, gas cooktop, pot filler, built-in oven, bkfst bar, pantry, island! REFRIG AIR, central vac, skylights, RV Pad! Incredible mst suite on its own wing featuring backyard patio access, jetted tub, sep shower, built-in cabinets in walk-in closet. Beautifully landscaped & walled for privacy. Close to shopping, parks, Bosque trails, easy access across town Montano, I40!
Contact the Sandi Pressley team for additional details!
Get your Morning Inspiration with the Sandi Pressley Team
