Should I invest or put extra money toward my mortgage to pay it off early?

I bought a house three years ago with a 3.875 percent interest rate. Over the last year I have become serious about budgeting, saving, and cutting expenses. I'm in a position where I think I could pay off my mortgage in five to six years, which should save me $60,000-$75,000 in interest. This would require me basically doubling my mortgage payment and putting most of my bonuses towards principal each year. I would also be completely debt free after paying it off. However, I'm 35 years and one of my main advantages for growing wealth is time.

Does it make more sense to pay off the mortgage in five years, or strive for a seven to ten year payoff window, while also using part of my income and bonuses to invest in real estate and the market and letting that compound over time?

Debt, Retirement, Estate Planning, Investing, Real Estate
Answers
Sort By:
Most Helpful
2 weeks ago

Great question, and kudos to you for being serious about budgeting, reducing debt, and investing in your future.  You have a low rate on your mortgage, and not having a mortgage is certainly a great goal .  I would fill up other buckets before making extra payments on your mortgage, however.  

1. Emergency savings (guessing you have this one covered)

2. 401(k) savings to maximize employer match

3. Payments on high interest loans charging over 6% interest (doesn't sound like an issue for you)

4. Contributing to an HSA if eligible

5. 401(k) savings up to the maximum contribution of $18,500 per year.  Given your age you may consider a Roth 401(k) if it's available.

6. Additional payments on low interest loans like your mortgage.

7. IRA or Roth IRA contributions if eligible

8.  Taxable accounts

 

Again, you're doing great in making this a focus so early in your life.  Hopefully this list can provide you some guidance on where extra cash should go.  Not that you would have done this, but I have seen young professionals make a great effort to pay off their mortgage only to turn around and decide they can now afford a bigger house.  Now they have a mortgage again and still haven't made retirement savings a priority.  It sounds like you have your stuff together, but this is a trap that people have fallen into.

Hope that helps, please let me know if you have further questions.

Matt Ahrens, CIMA® 

1 week ago
2 weeks ago
2 weeks ago
2 weeks ago