Invest Your Money OR Pay Off Your Mortgage

Which is wiser?

There is no general answer to this question. Instead of giving you an argument that tells you what to do, I will share contexts that require different answers and why those answers are the right course of action.

1. Dream House; High Rate

In this scenario, I am assuming the house on the mortgage is your dream house. And let’s say you got it at a high fixed interest rate, say 7%. You love the house and you want to own it for the rest of your life.

We are assuming that you live in the house too. It doesn’t produce any rental income. Also, you spend money on maintaining the house. The next question then is — how well are you doing financially and in life?

If you still have lots of opportunities ahead to make the kind of money you have now, then you should pay off the mortgage and get rid of the high rate. This also allows you to take a loan with the house later when rates are significantly lower and you need cash.

2. Dream House; Low Rate

If you got an incredibly low fixed rate on your mortgage, like 2% or even less, then the answer might be different. Yes, it is your dream house. Also, you are in a position where you can still make the kind of money you are making now for at least 10 more years.

In that case, there is no reason to rush. Invest your money instead. Don’t be fooled into the folly of bragging that your dream house is “paid off”. This is a money game, and you should never compare your situation with that of another. Never.

This becomes a different story if you are retired and you can already see that meeting up with the monthly payments will be a challenge. And let’s say you have a few years left (perhaps 5 years or less), and you don’t ever want to lose the house. Then, pay it off and end the chapter right there.

Some would argue that you should invest the money and be able to meet up with the monthly payments. I would say that you should make the best decision for your peace of mind. At retirement, what gives you peace of mind should take priority.

Every investment comes with risk. New kinds of investments have even bigger risks. The risk of losing your dream house at retirement because an investment failed is not worth it. Just pay the house off.

3. First House; High Rate

The main question in this scenario is this — have you started a family?

P.S. Continue to the part 2 of this article here — https://www.richculture.co/p/investing-money-vs-paying-off-mortgage