Stop Investing to Pay Off a 3% Mortgage? Here’s Why.
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- Опубліковано 24 чер 2024
- This is a "sequel" to the first video of "I Stopped Investing and Paid off My Mortgage. Here's What Happened": • I Stopped Investing an...
In this video, we will examine what happens if you invest vs pay more on your mortgage if you only have a 3% mortgage rate. In the original video, we look at if we should pay off mortgage or invest, but took the current mortgage rate of 7.18% at the time. In this video, we flip the idea on it's head, examining the 3% rate.
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#FinancialFreedom #OverpayMortgage
📚 About This Video:
Today, we dive deep into the controversial topic of whether it's more beneficial to Overpay Mortgage or Invest that extra money. You won't believe what the numbers reveal. And no, this isn't some clickbait video that leaves you hanging. I crunched the numbers and broke down the pros and cons of each side, so you can make an informed decision. So let's answer the burning question: "Invest or Pay Off Mortgage: What's REALLY the Best Choice?"
The Chapters
00:00 Stop Investing and Pay off the Mortgage!
00:27 The Great Comment Asking About 3%
01:06 The Original Numbers
01:58 Makes Sense to Invest?
02:20 No, Makes Sense to Overpay Mortgage?
03:06 What About a 3% Mortgage Rate Tho?
04:39 Financial Freedom Thoughts
05:09 You'll Find This Part Funny
05:30 Why I'd Pay off My Mortgage (First Reason)
06:57 Do Whatever the Eff You Wanna Do!
07:26 When you Should NOT Pay off Your Mortgage Early
👇 Links & Resources:
Article on Historical Mortgage Rates: fred.stlouisfed.org/series/MO...
Investment Calculator: www.nerdwallet.com/calculator...
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💬 Let's keep the conversation going! What's your take on this debate? Do you lean more towards overpaying your mortgage, or do you think investing is the better route? Share your thoughts in the comments section below!
*Disclaimer: Bob is not a financial advisor. Please contact a professional financial advisor prior to making any decisions. Some of the links and other products that appear on this video are from companies in which Bob Sharpe earns an affiliate commission or referral bonus. Bob Sharpe is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available.
See Part 1 of this Video Series (the original video): ua-cam.com/video/CNS_JMAo8aU/v-deo.html
Also, carrying a mortgage for a "tax break" may not be benefiting you anymore. See this video on why: ua-cam.com/video/5WaeQsid6yY/v-deo.html
Paid off my 2.75% mortgage. My sleep quality has been GLORIOUS
You could have just burned the money to stay warm at night and had the same effect.
What you said in the 2nd half of the video is exactly why I paid off my 3.5% mortgage early. It might not "make sense mathematically" to some people, but you can't put a price on freedom. Taking a 20% pay cut and only working 32 hours per week is balanced by not having a mortgage payment. Having a 3 day weekend EVERY WEEKEND is nice. Spending more time with the family, and working around the house on Friday instead of working for someone else on Friday is priceless.
That is amazing and that you can now enjoy those 3 day weekends. Love it!!!
It makes perfect sense mathematically. Everybody else is doing the math wrong. They're simply looking at the spread on the interest rate. What they're not factoring into that analysis is risk. They did not adjust for risk. Once you make a mathematical adjustment for risk, the math adds up.
@@inertiaforce7846can you elaborate on this? This is a great addition to the conversation
@inertiaforce7846 how could one verify what your saying? Idk how to add risk to the math..
Why couldn't you do all those things knowing you had a huge pile of money in the market? You know just because you choose not to put that money into paying off your mortgage early doesn't mean that money just disappears right?
6.5% rate on a 15 yr here- trying to pay off in 5 to 7 years. People don’t talk about the fact that the $ you earn investing is going to be taxed. Whereas the $ saved on mortgage interest is risk free and tax free.
Depends where it’s invested. If that difference is being invested into a Roth IRA or a Roth contribution of your 401k, you won’t be taxed. Those would be the same post tax dollars you’d be using to pay off the home early. Regardless, I’m still team pay off mortgage early, but just something you should consider.
Your scenario with a 6.5% mortgage has little to do with the video's scenario with a 3% mortgage. 3% mortgage interest is less than current inflation. There's no current math situation where it makes sense to pay off a debt that costs less than inflation over investing. Heck you don't even have to invest. High yield savings accounts are paying 5% right now.
And the only thing that's taxed are dividends. Long term cap gains are also taxed when you take money out or may be negligible depending on your situation.
And last...depending on the mortgage you can reduce the cost of the mortgage when filing your taxes by itemizing.
exactly - risk free and tax free
I paid off my 2.875% mortgage early. Yes, mathematically speaking, I *could* have made more in total returns with investing; but a major part was creating more security and greatly reducing my risk profile.
Now having had no mortgage for a few years, my investing was able to be a singular focus, with the worry of market corrections. The psychological boost of no mortgage is something money cannot buy...
Glad to hear your success and congrats on financial freedom! I’m in a 2.75% mortgage with roughly 85k remaining to save for payoff. Should have it accomplished by mid next year.
Bonus: If the market takes a dump you can invest serious cash while it's down and take advantage of the bounce back.
@@hobbes1069 that's the idea! With no mortgage, consistent investing coupled with a decent stock pile of cash (for buying opportunities), gives you so much flexibility
The feeling of paying it off is unparalleled. Paid a 30 yr mortgage in 6 years .
I just sleep better in a house that's paid off. Just call it sleep tax. It's worth it to me, even if I'm missing out on some investment growth.
I'm all about the sleep tax!
I'm not convinced. I continue paying my mortgage which is really small (1.3k/month, fixed 1.5%) because investing one's money in ETFs yield something like 10% in the long run. It would be stupid to give free money to the bank.
1.5%?! That's crazy good
Low interest rate case is explained at the end of the video…
I did a little bit of both. Decided on biweekly payments and invested. After 10 years I had enough invested to pay off the mortgage. Maybe not the best financial decision, but I sleep great at night not having a mortgage and now supercharging investing. Good video 🤘
That's a good idea - congrats on that approach!!
A few points to add with a paid off mortgage: 1) your emergency fund you need is much less, because you have no mortgage. 2) You become a much more stable investor because your aren't concerned about the market dropping because you don't need the money except for retirement. 3) You have less stress, which takes something off you mind, which helps you in many different ways including helping you focus better at your job....personally I got a promotion since my mortgage was paid off.
Paid off the mortgage with returns from holding quality assets. Everything now is a bonus!
Awesome!!
Most of my lifetime financial goals were hit in 2023! My portfolio is quite diversified to withstand market volatility n optimize returns.
Hi Jason, the market is at all time highs. Do you think there will be a recession soon or a downturn anytime soon?
Another idea.... Pay a substantial amount down on your mortgage, and do a "Recast". This would lower your payment, as much as, substantially. The payment is low enough to be handled in the case of job loss or illness. The extra saved each month can be DCA'd into your favorite investments. Just another "what if"...... Thanks for your videos, Bob!
Many good points!!! Thanks
You earned my subscription with this video.
Can’t tell you how happy and thankful I am we haven’t paid off any of our mortgages early. Thanks to low interest mortgages and the power of compounding investments at a rate much higher than 2.75%, we became multi-millionaires and financially independent in our early 40s. Much faster and much more securely than we would have if we’d been aggressively paying down those notes instead.
Said people in 2008 when they get their houses foreclosed…
@@michalstelmach4203 The people who got their houses foreclosed on didn’t have the finances to start with to afford those mortgages. Biggest financial fraud the world has ever seen.
All fake money when in the market with both feet
I agree with you, yes you might make more money investing but the risk is much higher. If you pay off your 3% mortgage quicker you are guaranteed a rate of return and low risk , but if you invest in stock market the risk is much higher and like you mentioned you could be put in a bad position when then market is down. If the market drops and you loose your job you will not be able to make mortgage payments. If I have the house paid off, I live on a very low income and still live in my home.
I was single at the time. I managed to save 3 months of emergency funds. 2 yrs after I moved into my house. I was diagnosed with cancer. The following year as I was going back to the hospital and doctors. To check for any remaining cancer cells. New management came in, I lost my job. Fortunately I had that money saved up. I was cleared from Doctors and was able to find another job 2 months later. I cannot stress enough about having an emergency funds. And I did get a 30 yr mortgage. Made extra payments as I could. Stopped making extra payments, when I was going through this. The mortgage was paid off in 19yrs. I was told I'm losing out in investing. But paying off the mortgage gives me a peace of mind, in case something else happens.
U did well. If u keep the mortgage and invest , u are throwing away interest to the lender on the house. It is a wash. Now u have peace of mind.
How fast would u need to pay off a 3% loan to beat investing
Forget the house you beat cancer. Amazing.
@@gamingduology4757good question. Prolly takes calculus or somethin to solve
Great video! I think three other things to consider are liquidity of assets, capital gains taxes, and tax write offs. Everyone's situation is unique so they should consider what works best for them. But, I agree with what you said about the most important factor being whether or not you plan on staying in that house for an extended period of time. Cheers!
Excellent point, you nailed it!!! That's what I've been telling people about! It's not only the returns on investments agains mortgage savings, it's what you can invest after you finish paying off your mortgage! And peace of mind (or financial freedom) is priceless! I have only 17.5k left to pay on my mortgage of 4.5% interest and can't wait to pay it off and be able to invest even more.
Well said.
Great video, very helpful! Additional things to consider would be potential write off of interest on your taxes. That's going down a whole different path. But, appreciate your efforts in putting this educational video together!
Great content.
Thank you!
Best down to earth financial “personal” advice yet. Yes that idea of “financial freedom” is so enticing. One thing to note; however, is in order to maximize that choice is to consider your fiscal discipline. If you pay it all off, but then find yourself blowing your extra cash at the casinos, or just buying “stuff”, was it worth it? That’s something I needed to throw into my decision, because i can get a little carried away at times
Hi Bob! This is my exact scenario. My wife and I have opted to pay our mortgage off aggressively. I agree with your reasons, and have another to do so that I see is overlooked:
We considered putting a lump sum into a CD for guaranteed 5% return. Further research revealed that this would be taxable income, similar to if we invested it in the stock market in a brokerage account. When compared to putting it down on the house, the return was tax-free. This ultimately led us to putting a lump sum on the house.
Thanks for the video. We plan on being mortgage free by early 2025 and look forward to financial freedom. Your analysis helps us fuel our fire!
I love videos that show all the different ETFs or index fund comparisons. Videos that show how much your portfolio with Grow to with some of the top ETFs or index funds out there based on $10,000 initial contribution and or based on monthly contributions over the years.
This is the video I was waiting for
#Freedom Thanks ! really like the way you explain make it simple its perfect.
Thank you!
Another great video, thanks for that. Since you asked, I'd like to see a video on your thoughts on bitcoin and all the etfs that are about to hit the markets. Thanks again and I really enjoye your videos.
Great suggestion! Thank you
Thank you, I'm buying my second house right now. And this videos helps a lot and gives me ideas. I got the interest at 5.89 for 15 year. Gonna try to pay it fast 6 years or faster
Good points, in the past I used to think invest, but these days I am agreeing with you, the personal freedom and security is more important than
There is something to be said about paying off home early. I have a low rate, but owning house at 60 vs. 65 buys piece of mind. Thanks for showing the Excel math, "Trust but verify", and think it adds value!
I have a 3.25% mortgage. I like the idea of paying it off in ten years and then going full force into investing when I turn 55 years old. I have $200K in 401k now (at 46 yrs old) so I feel I can let that ride making 12% on that, I made 24% on my 401 last year, while I point all of my funds to my mortgage.
55 is too late. You lose 10 years of compounding.
Great video. I'm working on building up my emergency fund, currently in a home purchased in 2015 with a 30 year 3.75% fixed rate. Divorced at the end of 2022, Ex didn't want the house (too much upkeep, prefers the condo life when she's faced with doing the maintenance and work). Not my dream house, doesn't fit my needs anymore. 1 daughter, she lives with me half the time, and a dog. In a 4 bedroom house with no garage. I can easily drop a bedroom (possibly 2, but I want an office space for work), add a garage. Tricky parts are staying in the same school district for our grade schooler and the current mortgage rates. The area I'm in has had about 6 homes for sale over the same months, and they are typically larger and more expensive than I need or can afford.
Leaves me with staying put, after I build up my 5-6 month fund, am I going to push hard to pay down the mortgage, invest, set aside more for a down payment on a new home for years from now when an opportunity arises. After my girl leaves grade 5 (2nd currently) and goes to middle school, I won't be as limited by address, opens up half the town we live in vs 1/5th for grade school. Your final thoughts on when you wouldn't pay off a mortgage early resonates with me. For what it's worth, I was paying down the premium prior to the divorce when I had the money and shaved about 4 years off.
Excellent video. My mortgage is 3% and we plan to move out in a year or two and turn it into a rental. I still want to pay it off early because we will still own the house. Im not investing in stocks at all i don’t know much about it.
What are your thoughts on putting the money into a HYSA at 5% until rates change and then taking that money out and putting it all on the 3.125% mortgage at that time?
Hi Bob, I was wondering is it better to first focus on having an emergency fund of 3 months of expense or 3 months of pay, and then focus on using that money to pay off bills/morgages? Or is it better to have like 1 month worth and then focus on paying off bills/morgages? Also with 401k is it better to slow down on that to focus on morgage repayment?
I really liked the video!!! I have a 2.6% interest mortgage and been investing my extra money to the stock market. I will be running my numbers and see if maybe I can make a different decision with my budget.
What you could do is split your money between 50% investing and 50% toward additional principal payment on the house. This way you get the best of both worlds.
@@inertiaforce7846sounds reasonable
A piece of mind is priceless!!
Love ❤this video. It has been in my spirit to payoff my house in 2024. I am working two jobs ( corporate and part-time retail) and working to get a third, so I can continue to triple my payment and still pay my utilities, invest and save a little too. 😊😊😊😊😊
I just paid my mortgage off (did it in 15 yrs) So glad I did.
When paying extra on your mortgage, do you just add that $200 to the original payment, or does it need to be a second monthly payment to ensure it goes towards the principal
I'm paying the mortgage off, man. Idc about an extra 100k. The freedom of not having to worry about my family being homeless is priceless
What about a high yield savings account? With yields currently over 5%. Wouldn't it make sense to put your extra into a savings account? And when interest rates drop, you could take the extra w/ earnings and drop it on the mortgage.
Risk free?
This was just brilliant. Math doesn’t lie.
You absolutely nailed it. Loss of 3% profit from investing is well worth the reduction in risk in paying off the mortgage early. ALSO, once the mortgage is paid off you can invest more once opportunities come up DURING economic turmoil. This can more than make up for the 3%. FREEDOM!!!
Great point, that 3% can easily be made up. Onward and upward to FREEDOM!!
Doesn’t paying off mortgage early just put way too much of portfolio into a single investment?
@@Mike604poker Not if it's your primary residence. The risk aversion 7+ years early outweighs any housing value dips within that timeframe.
Bingo. What you said a lot of people don't understand for some reason. They keep focusing on the low interest rate only.
No it's not. It makes no sense mathematically. The only way that type of risk mitigation makes sense is if you believe there's a decent chance the money you're investing can go to zero or a number close to zero. In an S&P 500 index that's highly unlikely.
Just in a position of taking a mortgage. I agree with you as well. I would like to be free and pay earlier.
Would you kind enough to send the spreadsheet as well
Something to consider is that since you need less money to live on without a mortgage, you can put that money into a tax advantages account to lower your overall taxes while working. Additionally, the investments can also be taxed depending on how its invested and sold.
You also have to account for taxes, home value appreciation, and uncertainty in the stock market. I would hedge my bets and put $100 in both options.
That's a good point!
Agreed with many here, not having a mortgage gives you a lot more flexibility with monthly bills, WE give a lot more to our grandkids now , we pay their private school, instead of paying a mortgage…
And I just want to tell you I love watching you UA-cam channel
I truly appreciate that! Thank you!
One thing you are forgetting is that a house is effectively a leveraged investment. So there is the potential to lose absolutely everything you own by putting everything into a leveraged investment. There are plenty of doom scenarios when you try to pay off the mortgage early. The 2008 crisis was a good example. If you pay off half of your mortgage when a crash happens and you lose your job you would have $0 in savings to float the payments and you'd also have $0 in actual equity in your house. Your mortgage would be under water and you'd lose everything. In the same scenario if I had investments that were not leveraged I could only lose half of them. I could still make payments on my house with that half until the market recovered. You are making the assumption that you manage to pay off your house and become unleveraged before a crash happens. That's not a guarantee. The only sure fire approach would be to have a healthy allotment of cash reserves and an emergency fund along with investments. I don't want all my eggs in one basket even if I happen to live in that basket. LOL
What if you are putting all of your extra money each month in to paying off your mortgage early and there is an economic crisis?? If the loan isnt paid off you still have to make those payments and if you don't have savings to fall back on you will still have to short sale or foreclose but now you have no money in the bank
How are you possibly making recommendations on investing vs paying off a mortgage WITHOUT accounting for taxes like capital gains on those investments and deductions for interest payments?!?
Most people will not qualify to deduct interest due to the higher standard deduction.
Is it better to have a mortgage and do house flipping at the same time? Ultimate goal is to pay off mortgage but also want to make passive income to do it faster
We paid off our house with a 30 year loan in 10 years by making an extra principal payment each month. But my wife and I have jobs that get layed off periodically. So the freedom of having no house payment and no debt. Cars are paid off and zero credit card debt. So this way we can invest and keep our nest egg incase of hard times.
#freedom love the channel appreciate all the insight. Interested in investment real estate and researching pros and cons related to DSCR loans. Definitely would be an interesting topic to cover. Cheers.
Noted! Thanks for sharing this idea!
People seem to fixate on the interest attached to your mortgage payment they forget about the amount of money that you've borrowed which is the true consideration to take into account. 3% 5% 7% they don't sound like alot but when you tie that against four five six hundred thousand dollars, it's quite significant. The interest that you will pay over the 25 year amortization is almost double the loan amount
You have less chance of loosing the house if you have that nest egg, even if the market went down. The mortgage company is more likely to offer a modification when the equity is less. Even if the market falls the nest egg could still be substantial, will be more likely get you through the tough times. Cash is king when times are difficult.
A homestead is a liability. Sure, you have equity, and it will likely appreciate in value. But you also have upkeep, insurance, misc fees, taxes and a civil liability if anything happens to anyone there. You could sell it to access the equity but now you need a place to live so that money goes right into another homestead, and the same market that gave you a "profit" takes it right back because every house went up in value, not just yours. It's a financial placekeeper, a bookmark. Plus, it could take months or years to access that equity. I'll take a paid off homestead over an equivalent brokerage account any day of the week because I will always need a place to live. Without a house to pay for, I'm free to invest much more and take greater risks and I can bequeath a free and clear home to my survivors which is much easier to responsibly manage than a complicated mix of financial investments they likely won't understand at the level I do.
Curious about pulling money from your investment accounts (401k/RothIRA) whether as loan or withdrawal for home purchase. Do the numbers make sense over the life of the mortgage etc
It seems the same as NOT investing and just paying off mortgage but curious on your perspective
Don't do that! Early withdrawals are taxed at an absurdly high rate. It's like 55%.
Where can we access the loan amortization spreadsheet?
I currently have a 3% interest rate, my wife and I had different views on this topic because i wanted to invest the money, so instead we made an agreement to put $200 extra a month towards the mortgage, and I invest the rest. Sometimes i second guess investing the extra though because it would be nice to pay off the house and be done with it however I'm not certain we will live in this house forever. Only time will tell I guess 😊
You'll be happy when you can retire earlier or retire more comfortably and your house still gets paid off.
In his scenarios he doesn't really focus on the fact that all this extra freedom is really only for the 7 years that the extra payment person paid their home off. The other guy still pays the home off 7 years later and has a significantly better retirement fund.
Thanks, seems that it makes no sense to pay it off. Too many risks. When your house is paid out it would be really tempting to get a bigger one and pay a bit again.
#freedom
My thing is i want to get into another rental (possibly). With interest rates the way they are its basically impossible to cash flow. Have that cash in a taxable brokerage now and its done well. Not sure if its better to buy now and take it on the chin for a few years and then refinance, or just wait for lower rates.
What about if you have the money saved already? Say invested in crypto, etfs, and savings totaling $60k over what your 2.1% mortgage balance is....would you recommend paying it off? Risk free rate on savings is 4.4% (FDIC insured)
#freedom I've been falling you since you did the workout video apex 10. I like how you broke down this video.
Oh wow that’s awesome!! The good old days!
Would you say... take out two 50k loans (one per spouse) from your 401ks to pay off the mortgage, if you were at the 100k mark in mortgage balance?
Can’t use my paid off mortgage as an investment. Invest the money instead is so much better.
Great video. Very educational. Is it possible to get the excel file so we can calculate the numbers at our end? Thanks in advance
Yes absolutely, here you go: averagetoamazing.com/go/mortgageexcel/
There are obviously Pros and cons of of both option but overpaying mortgage seem still higher risk to me. Assuming that someone have 6 months emergency fund and no debt other than mortgage, pumping all the money in mortgage does carry many risks one of which is that money are not as liquid as index fund investment(granted that when economy is not doing well its better not to use investments anyways - but thats what emergency fund is for). Overpaying say £200 per month on 30 year mortgage is locking this money in house equity and does not contribute to our ongoing finances and if really big crisis happens jn our lifes we have no way to use this money other than to borrow it back at whatever interest rate is available at a time. It seems less risky to invest is well diversified index fund or even high yield savings account so that we have more options- one of which is jsing our portfolio to pay off mortgage. But also if stock market is doing well but we have lost our job and are in a pickle, seling some of jt js a tangable options as opposed to money locked in a mortgage
I have started my mortgage free journey. My first payment of $3000 is 2.5X my monthly mortgage. I want to save interest and keep my $$$
I'm in that boat now. I have a 3% mortgage that I plan to pay off early however, I'm fortunate enough where I don't have to stop investing. I have enough income to do both.
What if you already have all the cash to pay off your mortgage but decide to invest instead of paying it off? Bad idea? Rate 2.875%
BobSharpe: the scenarios you've done are correct. However, I would(should be will) invest my mortgage payment on the remaining months/years that I've paid off. That scenario will always beat investing while doing the minimum payment no matter the interest rate. Basically, doing a snowball affect.
How so?
#freedom I appreciate the perspective. I have a 2.625% mortgage and I never really considered paying it off early because of how advantageous it seems. Your breakdown really makes me think some of the strategy over. Things to considers that would actually make the calculation even more competitive would be assuming you make the same amount of money regardless if your interest rate is 7% or 3%. The person with a 3% interest would have over $600 more a month to invest due to difference in the mortgage payment. Also, it would be nice to consider a breakdown regarding possible tax implications due to mortgage interest being a write off.
That's a good point on the extra money associated with a lower interest rate! As far as tax benefits for mortgage interest write-off, it turns out most people don't even benefit with that write-off ever since the standard deduction went up so high in 2017. Details on that piece in this video: ua-cam.com/video/5WaeQsid6yY/v-deo.html
@@BobSharpespot on. Standard is solid now
Your mortgage is lower than the rate of inflation. You are making money on the spread.
My husband and I are in this exact position. I want to pay off the house and he wants to invest. We are stable enough to go the investment route, but I like the idea of the peace of mind
We are doing both. The goal is to have it paid off before age 60 so we pay a little extra each month to accomplish this goal. That said, having it paid off even sooner would give us more flexibility, which is just as important.
At some point we plan to move. Even if interest rates go down by then, I don't see them going as low as before. So if we sell our home and buy a similar value home in a new location, it would be better to have a low or no mortgage. Its faster to pay off a mortgage that has a lower interest rate.
I have to keep reminding myself that I didn't take out a mortgage because I wanted to invest money. I took it out because I didn't have the money to pay for a house up front. It would be different if I took out the loan and put that money in the market because I'd also be making money on that money.
He talks about the situation where you get laid off from your job but it’s still better to pay off a 3% mortgage.
The problem is until that mortgage is paid off you still have make payments and your money is tied up in the house with no way to access it without selling it . Can’t get a home equity loan without a job or source of income.
You be actually much worse off tying up your extra money into paying down a 3% mortgage if you lost your job or income. Because you would have no liquid funds to tap into such as your brokerage account to pay your mortgage payments.
What you are failing to consider is if you are paying the 200 dollars to your mortgage and economic turmoil occurs before your house is paid off. You no longer have any money to make your house payment and you have put all this equity into your home that the bank can now foreclose on. So you now have nothing.
In the situation of investing the 200 you at least potentially have money to live on and could sell your house before the bank forecloses.
I'm working my way to payoff my 2.8% mortgage this year and I will truly be financially free.
Seems there should be some considerations for capital gains as a negative towards investing.
First part of the video is great. I would argue the fact of the economic turmoil. If you’re constantly investing and it goes down 30/40/50% and you lose your job. Most will get a job right after or unemployment second with even 1 year or 7 years 50% down in the stocks will allow you to even dollar cost average out a portion or personal finance for many many years you have emergency funds maybe spouse help. Let’s say it’s so bad economically well my prediction is I’m probably not worried about paying anything I’m probably worried for my safety and survival. I believe we learned a lot from that recession and I do not think we will get back to that in the “near future”
I buy tbills at 5% ish, my mortgage is 2.63 or something while building up the cash to pay off the house should interest rates drop drastically
umm... this is why you have a safety net... so that your not double screwed... If you have a safety net of covering the mortgage for a year. Even taking that out of the investment pool nets you more on the 3%/7% comparison.
Note: You do a great job of covering many scenarios though. Awesome job.
Consider the tax cost of investing and the tax gain of paying interest and the tax loss associated with having less interest paid over time. I could take the number calculations to the depths of the Marianna trench with all the considerations that have to be made.
I'm in the save boat with 3.3%. Investing is nice, however using that to pay off the mortgage isn't great when capital gains tax kicks and it will end up being a wash. My strategy is to save 25k plus emergency funds in a high yield savings 4.25% and then putting in 25k a year into the mortgage in a lump sum.
Housing Market prices will likey be higher in 20 years so your equity will inevitably double. Plus after shaving off years & saving on interest $$ it’s a good idea
I do both 50/50. On the home principle & on investment
Wanna be well rounded
Nice vid👍🏻👍🏻
Great points!!
we are investing for two more years, vs a lower mortgage rate. After that we should have enough to pay off the mortgage - but we might not. We might stop paying the mortgage from our salary, and pay it from the invesment via drawdown. We have enough for the investment to pay the rest of the mortage term and while the investment is earning more than the mortgage rate, it’ll grow a little vs using the lump sum to pay off immediately. So at the end we’d have more money - but we have effectively the same ‘paid off’ peace of mind
Do both. $100 to stocks and $100 to principal
I'll never begrudge someone from gaining piece of mind by paying down early; however... the #1 reason referenced is bad advice. Even in economic turmoil and a job loss, which would you rather have? Liquid funds to survive and continue making that payment or illiquid funds trapped inside your home equity? In this example, you're only safe from bank action on the last 7 years of the mortgage. For the other years, your fallback is a HELOC at higher interest. An alternative path can always be letting investments compound and then pay off the mortgage whenever. There's value in piece of mind but there's also value in optionality along the way.
Also, the person who decides to invest may not put that extra money into investments at all. The extra $200 could fall into lifestyle creep items such as a car upgrade.
what about taxes on investment growth? the money you save on mortgage is cash in pocket. the money you make through investment growth is taxed before it can be spent.
The number one reason to paying a mortgage off after 1/3 of the way through is reducing the banks risk. Losing a job will be regardless. Save to pay the house off and do it in one payment when it’s time. If that time never comes, then keep investing. Even if the stock market tanks when there’s enough diversity it’s not a problem.
Paying down my 2.875% mortgage, knocked over 6 years off the life of the mortgage in 3 years. Every COLA we add another $10
One thing seems to be missing..... The interest you saved on the home loan by paying the house off early is a TAX FREE gain. It didn't look like tax was considered on the pure investment side. Did I miss something?
I have 1.33% mortgage rate ad I'm always advised to not pay it off because the rate is low. It's been 2 years that I'm waiting and I'm just not confortable with this debt and in taking risk investing.
Thanks to you I will probably start paying off the morgage and liberate myself from it.
You know what you could do? You could calculate what your monthly mortgage would have been at 5% interest rate, and put the difference to additional principal payments.
The twist to all of it is the taxes. If you're putting all of that in a roth ira, it works out as shown. If not, it's more complex.
Something that is ignored here is if your company has matching 401K contributions and you don’t contribute enough to get them because you’re trying to pay down your mortgage, you’re losing out on 100% return on the match. Also for some, more 401K contributions may drop you into a lower tax bracket that could save you an additional 2% + on fed taxes.
#freedom ur $5 a day series got me into your videos and I started investing $15 a day a few months ago and now I have $2500 in a brokerage account and I’m up over 8% keep up the work
That’s awesome, congrats!!
You can always borrow against a paid off house in an emergency, try doing that when you’re homeless
What about tax implications? Mortgage interest can be deducted from taxable income.
I thought the same thing until I realized that we aren't actually getting a tax deduction on mortgage interest. Here's why: ua-cam.com/video/5WaeQsid6yY/v-deo.html
I’m getting a tax deduction on my mortgage
That’s why smart investors also make sure to have an emergency fund of 6-12 months of living expenses; so no need to sell-off your investments at a loss during economic turmoil.
Risk, risk, risk
Pay off early, no matter the interest.
Totally agree on the risk!