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September 15th, 2020

Should you pay off your mortgage early?

While reducing debt by paying down your mortgage sounds appealing, this article will explain why keeping your mortgage may be the best option in the current environment.

Paying off your mortgage early can be quite the dilemma.  

Is it nice to eliminate that monthly payment?


Is it the best financial decision?

Likely not.

Let us explain why.

Being debt-free sounds like a no brainer, but there are multiple incentives and reasons why you may want to carry your mortgage through the entire term.  

First off, the tax breaks are an easy incentive.

Secondly, with how low mortgage interest rates are, historically your money is better off being invested in the stock market than paying down your mortgage ahead of schedule.  For example: the long-term market average is conservatively 7%.  Most people currently have mortgage interest rates in the low 3% range.  So, we should be able to capture that 4% spread by investing the money we would have put towards the mortgage in the stock market.

Surprisingly, inflation is your friend when it comes to paying off your mortgage. Inflation theoretically will increase with time thus increasing incomes, so when paying off an old mortgage that has a fixed payment….your future dollar will go further.

Lastly, do not forget your emergency fund. Is it full?  Because once you pay down on your mortgage, the money cannot be withdrawn; and if you invest it in the market, you will likely pay taxes on the withdrawal.

Now from the opposing view…

By paying your mortgage off early, you do have a guaranteed return on your money. This is in comparison to investing in the stock market which has a lot more risk and inherent volatility. If you are someone who is not comfortable with market risk, paying off your mortgage is a solid investment. 

The most obvious positive about paying off your mortgage is being debt-free. You can finally free yourself from the shackles of that monthly payment and brush another worry off your mind. Having fewer stressors in your life isn’t a bad thing. 

Like most things, paying off your mortgage is a personal decision and it takes a lot of thought on what can best benefit you personally. In circumstances like this, it is always nice to have a helping hand. This where our team at Twenty Fifty Capital can assist you!

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