Should you Pay Off Your Mortgage Early, or Invest? Answered.
FREE STOCKS:
🏆 Webull Deposit a Minimum of $500 and Get a Guaranteed $50 Free Stock:
🏆 Webull UK:
💸 SoFi Checking & Savings: Get up to 4.40% APY, pay no account fees and earn $250 when you sign up and set up direct deposit. Terms apply.
👾 Join our free Discord Community:
RESOURCES:
💵 Free Templates:
🐪 Hump Days Newsletter ➭
▶️ See What I Invest In ➭
💳 My Favorite Credit Cards ➭
MY SOCIALS:
Secret Channel —
Instagram —
Twitter —
TikTok —
Rickie (Editor) ➭
WHO AM I?
Hello 👋 I’m Humphrey, I used to be a financial advisor, worked in gaming/tech, and started my own eCommerce business. I make practical, rational content on investing, personal finance, the news, and much more with a data-backed approach. My goal is to help you with financial literacy and creating wealth.
PS: I am no longer a current Financial Advisor, any investment commentary are my opinions only. Some of the links in this description are affiliate links that I do receive a commission for & they help support the channel!
⏱️ Timestamps:
0:00 – Start Here
ALSO DEPENDS IF YOU WANT MORE CASH MONTH TO MONTH OR SAVE MORE IN THE LONG RUN
Pay off the house then its BEHIND YOU!!
Agreed. Nothing like financial freedom and piece of mind. Plus, I’m still trying to figure out this investing thing 😅
@@melindacoles7046Invest in a broad stock market index like something that tracks the S&P 500 and you’ll be just fine.
I used to think like this, but then I think that 3% is 3% of hundreds of thousands of dollars and that 8-10% is only what you are putting into the stock market. It’s easy to think oh 300k on a house or 300k into the stock market, but the house is likely not paid off because we don’t have 300k in the first place. Thats just my thoughts though. I am curious to hear any counterpoints.
That’s not how the math works. You have to break it down to see how your money contibuted towards principal vs market is working for you.
Assuming a 300K mortgage, each 1K payment towards principal saves you 3% or $30 compounded each year.
You can instead choose to put the extra 1K into the stock market and earn 8% or $80 compounded each year. Making you about 2.66 times the amount you would save on the same 1K payment towards the mortgage principal.
I agree, but I guess I dont know enough about how a mortgage works since I have never bought a house.
@@nickstark8479 exactly this.
Also, after it’s paid off, that is it. Zero return.
Investing it keeps earning indefinitely.
What about a more complex comparison playing out the scenario of a payout (even if 3%)? Likely once the house is paid off, the person would be free to put more towards investing. Is there a greater long term investment return in this scenario as an investment only strategy still has the burden of ongoing payments? For example, would 20 years of investment only while paying a mortgage be the same as a 20 year span where the house is paid off in 10 and there’s heavier investment for the final 10 years. would the increased investment catch up or surpass in half the time?
It would never catch up, the math doesn’t change. However, it’s not always as simple, since paying off the mortgage earlier is more like a forced investment, as opposed to someone who invests only some of the money they save by keeping the mortgage.
Pay off the mortgage first you get 3% guaranteed, until the market you might get something from -40 % to 30%
If 8% is the conservative average? More likely looking at -30% to +50%… Average of those being 10% 😅
I see a low mortgage rate as a “lower rent” to borrow the money, so the bank is giving me an opportunity to pay it off faster without accumulating so much interest. When viewed in this manner, I always come to the conclusion that i should pay off my mortgage even though its 3% fixed for 30 years(26 now)
The problem, is 26 years from now, sure you saved let’s just say 100k in interest, but at year 27 you have zero money, or you could have 100k earning interest. (instead of using money to pay down the mortgage, money invested) – additionally, it would be more than 100k.
Lastly, if you pay off the mortgage early, that money is literally tied up forever – unless you pay to access it. It’s dead moeny, it won’t earn you a cent, and you can’t spend it. While if you had invested it, you could draw from it at any time.
But, each person feels different about debt.
@@anthonyhammer286 It’s all about perspective, when you purchase any other item, the transaction is a good or service for money, why is a home different? When people buy cars they don’t think, my money is tied up and decreasing every month, they just buy it. I see the house in the same manner, if you purchase a home, you agree to pay what you agreed to pay, why do you consider the funds tied up? Aren’t you living in the home?
@@RelearnMath it’s the additional payments that would be tied up.
That money *could be* better utilized elsewhere.
Let’s say in 10 years you’ve paid down the mortgage – congratulations! Oops, now you’re laid off. (whatever reason)
In one scenario, you have zero extra cash, but a lower mortgage balance.
The other, you have tens of thousands of dollars to help make mortgage payments. And, at any time, you could use that money to pay down / off the mortgage.
It’s about flexibility and sound financial decisions. Better returns, better “safety” net, and more flexibility with your money.
That’s it.
Everyone feels differently about what makes them feel secure. “cash” imo, is more secure than lower principal balance on my mortgage.
It’s literally the smarter financial move. To say otherwise is silly, imo.
P. S. Let’s not even start a debate if you don’t go full term on the mortgage before you move and have to sell. Now you’re really missing out in lost *investment potential.
Cheers!
@@RelearnMathThat’s the point. The house should NOT be considered a good ASSET in the traditional sense. Like a car, personal houses have continuous costs associated with their maintainence and are hard to sell, extract value from and does not generate income for you.
This is one reason why investing in funds, ETFs and stocks may be a better place to store your wealth than within property.
@@nickstark8479 in that case, just like what the video says, it’s very complicated, depending on where you live, the housing market for some ppl could be very good, easy to sell and very little chance to lose $$ when you do sell it later, and often even make big profits. Where as some areas once you buy it it’s a $$ pit, and you lose $$ when you sell. So this should also be a factor.
Look up the term: risk adjusted rate of return
What about a situation where somebody has a variable rate mortgage. It is currently low, but will likely get higher soon. Would it be worth making more payments while the rate is low so as to have less balance once it increases?
Yes 💯 yes. I’m no finance guru but I’d get that principal as low as I could before rates go up!!
I believe it was J Paul Getty who said people who understand interest receive it. People who do not understand interest pay it.
Interest rates at any moment in the next 30 years can just jump up to 10-15 or even 30%. You have essentially no control over this. If the stock market is doing bad you can withdraw at any time.
If it’s 7 vs 8, I would pay off mortgage first: there is no risk and more importantly there is tax on the 8% capital gain earning