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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
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November 2018

Great question and excellent job on getting serious about your finances! You're 100% right in that time if your main advantage and it is actually the most important factor when investing.

One question I always ask my clients is - "Do you plan on living in the house for another 15-30 years?" If you can't answer 100% yes, it's better to do a split contribution. If you change your mind, and want to upgrade in the future, you're just going to be back paying off a mortgage again.

If you plan on completing the mortgage, I would recommend adding in an extra $100-$200 or so a month towards principal. That will help finish your mortgage off early and save you roughly $10's of thousands of dollars in interest. After you meet that goal, the rest can be put towards equity and real estate investments. Look into REITs as a way to invest in real estate while maintaining liquidity with your investments.

Hope this helps!

Chance Butler - Intelligent Investor




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