Paying off your mortgage early is a major goal for many people. Eliminating mortgage payments not only means one less bill to pay each month, but it may also mean saving money on interest that you would have paid over the full life of the loan. However, when you have cash available, it can be difficult to decide whether it is more worthwhile to pay down debt or expand your investments. While these guidelines can be helpful in understanding how to weigh your options, everyone’s situation is different. If you have questions, you may have it helpful to discuss your financial goals with a professional.
Deciding whether to pay down debt or invest can be difficult because the difference in money that you make or save can be hard to predict. When you pay down debt, you can save yourself in interest that you would have had to pay on the loan. This tends to be more desirable if you have loans at a high interest rate.
To get an idea of how much you might save, consider using an online calculator to estimate how much you would have paid in interest had you not paid off your mortgage early. The amount can be a considerable sum. For example, let’s say that you have a 30 year mortgage for $250,000 at 4.5 percent. Paying that amount off 10 years early can save you as much as $76,000 in interest over the life of the loan.
While there are many benefits to paying off loans early, there can also be advantages to investing the same money instead. All investments come with some degree of risk, so considering that risk with the likelihood that your investment will outgrow what you would have saved in interest on your mortgage will help put into perspective the pros and cons of doing either (or both).
When deciding whether to invest instead of paying off your mortgage, you will have to think about the types of investments that you intend to choose. Investing further into a retirement account for instance, will have a very different outcome and risk assessment than purchasing stock or putting money into a certificate of deposit (CD). When weighing your options, a financial advisor can help you discuss your investment choices in terms of your existing portfolio, active loans, retirement goals, and more.
Paying off your mortgage early can have advantages, including saving money in the form of interest that you would have paid over the life of the loan. However, that same money can also be spent adding to your portfolio of investments. Deciding which route to go will ultimately depend on your individual financial circumstances. If you would like to speak to a financial advisor about your options, contact us today.
Harvest Wealth Partners is committed to helping our clients work towards a successful future. We believe in your potential to understand the financial options that can lead you to your goals. Call us today to partner with our team. We look forward to continuing our mission for years to come.
You can submit your questions by filling out the following form.