Should You Pay Off Your Mortgage Early or Invest the Money?

Deciding whether to pay off a mortgage early or invest the money can be a tough decision. Although paying off your mortgage early would be nice, consider whether you are missing out on the opportunity to invest the money. Here are a few things that you should think about when trying to decide whether or not to pay off your mortgage early.

Eliminate Payment

Perhaps the most attractive benefit of paying off your mortgage early is eliminating the monthly mortgage payment. For most people, this is the single greatest expense that they have on a monthly basis. The uncertainty and debt load that comes with having a mortgage would be completely eliminated. You would not have to worry about losing your job because your biggest financial obligation is now gone. 

Tax Benefits

When you have a mortgage payment, you have tax advantages. When you eliminate the mortgage payment, you also eliminate the tax advantages that come with it. All of the interest that you pay each year on a mortgage is tax deductible. This means that if you paid $10,000 in interest for the year, you can lower your taxable income by $10,000. That might be enough to put you in a lower tax bracket. Therefore, there is a certain percentage of money that your mortgage saves you every year. When considering paying off your mortgage, you need to factor in that percentage into your calculations. It is probably a good idea to consult your tax professional before you make the decision.

Interest Rates

Another thing that you will have to consider is the performance of your potential investments. When you are considering investing in a particular security or opportunity, you should know what kind of a return you can expect. When you compare it to your mortgage, it should be higher than your current interest rate. Otherwise you are not really gaining anything. If you are paying 7% on your mortgage and only getting back a return of 2% on your investments, you would be better off to just pay off the mortgage early.

You can then start investing the money that you save each and every month on your mortgage payment. When you are not making a mortgage payment, it is a lot easier to save money for investments. Your portfolio will grow much faster than you ever believed it could. The interest rates associated with your investment should be the subject of great scrutiny on your part. Make sure that you know what you are getting into before you invest. Otherwise, you could lose all of your money and still be stuck with a mortgage.