Is it better to pay down your mortgage faster or invest? Let’s break it down. If you have a $300,000 30-year, fixed rate mortgage at 5% interest and you commit to paying an extra $100 every month, you’ll save nearly $40,000 in interest over the term of the home loan. However, if you instead put that $100 monthly into an investment that compounds annually with an 8% rate of return of 30 years, you’re likely end up with $140,855 when your mortgage ends. You will, however, have to spend the extra $39,937.25 on your mortgage, so your compared return will only be around $100,000—still, not a number worth ignoring. This is a simplistic look at this concept, but it gives you a good idea on what the rate of return could be.
Before you make your decision, however, let’s hear a second opinion. Some experts think 8% is a little more aggressive than realty and this rate of return usually does not include tax considerations – which can both help your rate of return and also hinder it in some situations if you take advantage of pre-tax income contributions that are taxed later. Additionally, the investment timelines for portfolios with 6-8% return are usually long-term return rates. It is smart to do this, he says, if you have a mortgage with 10 or more years to go, when these longterm rates apply. Experts also note that these rates are not guaranteed. Sure, you could make more money investing the extra dollars you’d pay toward your principal but the freedom and peace of mind that comes with paying off your mortgage early is priceless.
From buying and selling, to escrow, title, and beyond, we’ve got you covered with comprehensive resources. My name is Kristi Muñoz and I am a title insurance and sales expert at Lawyers Title. I am part of a team that was created specifically to make you a more efficient real estate professional. I take pride in closing your transactions and making certain that you don’t have to worry about title issues and document recording. This means that you will have more time to focus on what you do best.