Beware, financial geeks. You’re not going to like my answer to the question, “Should I pay off my mortgage or invest?“ Not to worry, I’ve since gone back and added the math analysis regarding paying off your mortgage
I’m making a few assumptions as I begin this post.
Pay Off Mortgage or Invest? Starting Assumptions
- If you’re asking this question, you’re in great financial shape.
- All your consumer debt is paid off. If you have an auto loan, pay that off first before entertaining this question. Your credit cards need to be paid off before this is anything to worry about.
- You are contributing a minimal or reasonable amount to retirement. I’d put the minimal at 10% and reasonable at 15%.
Four Steps To Help You Know If You Should Pay Off My House Mortgage or Invest
With those assumptions in place, here is how I’d suggest you make this decision – invest or pay off the house mortgage.
Step #1 – Put all pens, papers, and calculators away.
Step #2 – Ask your husband or wife to join you on a walk
Step #3 – Ask each other this question – Would you rather pay off the house early or have extra money in investments?
Step #4 – Do whatever you feel like is the best choice, whatever you feel called to do, and whatever you think honors God.
Disclaimer: This approach is not transferable to other financial decisions. If you are upside down in debt, do not make your financial decisions based on what you feel like. This, instead, is a luxury offered only to those who are financially responsible and who have a proven track record for making wise financial decisions.
Upon purchasing a new home, it is smart to use a mortgage loan calculator to make sure your new investment is within your budget.
Why Paying Off the House Early is Not a Math Decision
One of the deadly sins of personal finance is the mindset that whatever makes more money is the best decision.
Instead, the best decision is the one that takes you further down the road according to your life goals.
My goal is not to accumulate as much money as possible. Money is not the destination, but a vehicle to get me to where God wants me to be with my money.
For example, the decision to live debt free has more to do with the emotional impact than it does with the mathematics. Interestingly, the math may drive the decision – you feel awful paying all that money (interest) to someone else. That feeling of disgust will lead you to pay off your debt. When the debt is paid off that feeling of disgust will be replaced with a feeling of satisfaction. How you feel about your money is much more valuable than how much money you have.
Why I’m Paying Off My House Early
Here’s the thing. I’d rather not lose x% of my money even if I could gain X% + 2. What does that mean? Let’s say you have a home loan at 6% and you feel confident that when everything clears (taxes, and fees) you can make 8% investing in the stock market. Personally, I’d feel better knowing that I’m not paying someone $150 in interest every month, even if that means I miss out on the chance to make $170 in interest.
Does that make mathematical sense? Nope. But, I don’t care. I don’t like paying interest to other people so I’m going to deal with that first. Later I may invest some of that money, but for now I get a bigger emotional payoff by paying off the house than I do by watching my investments grow in the market.
Are You Being A Good Steward If You Pay Off The House Early?
Is someone being a poor steward just because they don’t run the numbers? I don’t think so. God doesn’t require his children to be accountants, just to make him happy. To be a steward is to responsibly use the resources you have. If you are thinking about paying off your house early or doing extra investing you are a good steward. Poor stewards don’t get to make these kinds of choices.
Well, there it is. An entire post on paying off your home versus investing without a single mathematical equation.
Now, here’s how to pay off the mortgage early.
Photo by Okie Dan.