One thing we’ve been taught about money since we could understand its meaning is that debt is inherently bad. So if you’re a homeowner, you’ve probably wanted to eliminate your mortgage for good, and seriously pondered if you should pay off your mortgage early or invest.
While nobody enjoys paying off a mortgage, the reality is that you need to use your finite wealth strategically. So if you’re wondering if you should pay off your mortgage early or invest, consider these focal points first:
Not all debt is equal
While no debt is enjoyable, some debt can present more financial damage than others. For instance, high-interest rate debt, such as credit card debt, can be incredibly harmful financially. This reflects the fact that credit card debt is intended to be paid back rapidly, and isn’t meant to be long-term loan.
On the other hand, low-interest rate debt, such as your mortgage, is meant to be a loan that will be paid back over a long time period (decades or years). Although mortgages are meant to be profitable, they’re meant to be financially viable so they can realistically be paid back without driving the debtor into bankruptcy. With this in mind, you can realize that not all debt (such as your mortgage) necessarily needs to be eliminated immediately.
The potential returns of investing
Although mortgages should be weighed differently than credit card debt, you’re still paying interest on them, and it’s worth considering the advantages of abolishing that interest.
While wondering if you should pay off your mortgage early or invest, you should consider the returns you would get from investing your wealth. Although investment portfolios vary, consider the average return of the stock market. Historically, the U.S. stock market has averaged an annual 10 percent return since its inception.
When compared your mortgage’s interest rate (overall, the average is around 3 percent) it’s clear that the returns you can get through investing your wealth have the potential to outmatch the interest paid on your mortgage.
Want to learn more about if you should pay off your mortgage early or invest?
As a fiduciary firm, at LexION Capital we’re legally required to always act in your best interests. We carefully take your financial needs (such as your mortgage) into consideration, and craft a unique investment portfolio that can meet your long-term goals. If you’d like to learn more, don’t hesitate to contact us today to speak with one of our fiduciary advisors.