This weeks wisdom is going to help you answer the question “should I pay off my mortgage as early as
possible if I can or am I better off not paying it off and investing the money?”
I think that question needs to be answered in the context of the IFW philosophy that when it comes to
financial decisions never say never, never say always it depends!
Lets explore this to determine what makes the most sense for you!
From a purely mathematical perspective the answer depends if you can pay less interest on your
mortgage (remember it is tax deductible interest) than you can earn with the money.
Imagine you have a $300k mortgage BUT you have the $300,000 available to pay off the
mortgage. If you take that $300k and put it into a moderate investment and earn an average
return of 6% with that money it would grow to $736,000 over 15 years. If you borrowed
$300,000 and took a mortgage over 15 years you would pay just below 73K in interest.
(assuming a 3% after tax deduction interest rate)
So over 15 years you would be better off by $663,000! In other words you would have grown
your net worth by $663K.
Here are some things you have to consider to make sure this strategy makes sense for you –
- You need the $2,000+ each month to pay the mortgage
- In order for this to work you MUST stay committed and disciplined to leave the money alone
and not buy something (especially a depreciating asset)
- You have to understand the decision and be comfortable with it emotionally.
If you can check those 3 boxes this strategy makes sense and can possibly increase your net worth over
time by hundreds of thousands of dollars!
This is one example of how having the right information and implementing a strategy over time can
make a huge difference in your future net worth!
Lets get there together!