))
Should I Pay Down my Mortgage?
Manage episode 376157236 series 2910154
Content provided by Mike Morton, CFP®, RLP®, ChFC® and Mike Morton. All podcast content including episodes, graphics, and podcast descriptions are uploaded and provided directly by Mike Morton, CFP®, RLP®, ChFC® and Mike Morton or their podcast platform partner. If you believe someone is using your copyrighted work without your permission, you can follow the process outlined here https://player.fm/legal.
Have some extra cash? Wondering if you should put it toward your mortgage? Join Matt Robison and I this week as we delve into the answer to this FAQ. It’s not as simple as you might think. Why? Because why you shouldn’t is equally as compelling as why you should work to pay down that debt.
By the Numbers
Let’s start with the basics. From a strictly mathematical perspective, it usually doesn’t make sense to put extra cash into your mortgage. Why? Well, start by comparing your mortgage interest rate to the potential return on investments. If your mortgage rate is low (e.g., 3-4%) and you can potentially earn a higher return by investing your money elsewhere (e.g., 5-10% in a high yield savings account or the stock market depending on your timeline), it makes sense to keep your mortgage and invest your extra cash.
Sleep at Night
So we should just stop there, right? If we were robots, sure. But we are human, and humans have emotions which play a significant role in our decision making. If having a mortgage creates anxiety or discomfort for you, paying it off may provide a sense of freedom and autonomy. Some people prefer the peace of mind that comes with owning their home outright, even if the math suggests otherwise.
Money Relationship
Maybe you aren’t anxious about your mortgage, which is great, but there is another factor to consider from the human side of decision making. Your financial decisions might be influenced by your upbringing, cultural norms, or peer groups. Sometimes people follow a particular financial path simply because "that's what you're supposed to do" or because they've seen others do it. If you have a strong belief system with regard to debt, it is a consideration worth noting.
Life Events
Finally, the decision to pay down your mortgage early could also be motivated by significant life events, like retirement or sending kids to college, which can blend rational and emotional considerations. If you only have 15 years until retirement but refinanced to take advantage of the super low interest rates of 2020/2021 with a 30 year mortgage, you may want to pay that off by the time you retire from the workforce.
Ultimately, you need to consider both the mathematical and emotional aspects of paying down your mortgage and make a decision that aligns with your unique circumstances and goals.
152 episodes
Share
