Invest or pay down your mortgage? Which is better?
If you've read my book, you'll recall that I recommend comparing at the interest rate of your debts against the likely rate of return of your investment options. Throw your money at the one that the one with the higher rate.
Sometimes, your goal is to lower your overhead. If this is the case, only look at your debts. For most of us, it's the credit card bills that need to be paid down. But this posting is about mortgages.
When the pandemic became obvious, it was clear that the Stock Market would take a serious hit. So I gathered my pennies and bought companies that were severely beaten down yet unlikely to go bankrupt. It is July and the stock market has recovered to a noticeable extent but is volatile and flat. It is yet to decide if it'll continue up or go back down a second time. Because I'm under spending, I have extra in my paycheck that I don't know what to do with.
With my credit cards under control and the stock market uncertain, I've been looking at my mortgage. My interest rate is 3.8% - not great but not bad. Then it struck me that for every extra dollar I put at my principle, I save 3.8% times the number of years remaining on my loan. If I have ten years left, this puts 38% more money in my wallet ten years in the future. Because of compound interest, this savings is actually higher, but I am a fan of simple math. My numbers are a little off, but in my favor.
Its obvious that putting a few hundred dollars a month extra at my mortgage while the stock market figures itself out, is a great option. The down side, is that I can't get this money unless I sell my house. On the plus side, my retirement planning becomes a little bit rosier.
If you like this type of idea and haven't read my book, give it a try! The ebook is only 99 cents, free to Kindle Unlimited customers.