In this video, we go over the best way to go about where to put your excess cash when you have an existing mortgage. What is the …
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In this video, we go over the best way to go about where to put your excess cash when you have an existing mortgage. What is the …
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37 comments
What's your current mortgage rate and are you considering paying off your mortgage early or investing? PS: Be aware of the spam/scam comments in the below comment section. I just purged a bunch, but there will inevitably be more that pop up. If theres ever a comment with a lot of likes but they're referring you to some random person's name and promises of returns…its a scam.
I have a new mortgage loan with a high interest rate, my question is: will it be a good strategy to make extra payments on my mortgage for 2-3 years until I can refinance to get a better interest rate?
I paid off my mortgage with an inheritance. I totally regret it. I wish I just doubled the payments to pay off early and invested the rest. But I guess there’s peace of mind I own my home.
I didn't hear any mention of taxes and fees on the investments.
They'll eat out quite a nice chunk from your investment returns…
S'informative
The thing I never understand is using the extra cash to reinvest. So I buy 100 shares in a stock, then the stock goes up. Now how am I getting the extra money then reinvesting it? Don't I still just have 100 shares? Where's the compound? No matter the time it's still 100 shares, right?
Another consideration in favor of investing: building up savings that can be used if falling on hard times. If, on the other hand, all of your extra cash goes into the mortgage, isn’t it much harder to access that equity to tide you over? You have higher risk losing the house or having to fire sell. Furthermore paying off early saves you interest later whereas investing starts compounding immediately. This means you have more overall money to tide you over if worse comes to worst when you’re money is invested. Paying off the mortgage early when you have a decent rate is an example of supposed “good behavior” that is really more like “feel good behavior.” I’ve never seen this mentioned before but it occurred to me while watching your video.
This is my fifth year after retirement. I’e been following the 4% rule thing I saw on a youTube channel, but this isn’t really how hard I expected things to be. After I cashed out a lump sum, I still have about $760k left, but at this rate, and with how the market is (we were putting money away in an index fund), I’m starting to get really worried.
This is interesting however if u pay off the mtg early the monthly payment goes down allowing u to overpay more so u end up snowballing the payments where as not doing this then ur investment payment wld remain the same
Anyone paying off mortgage that’s is less than 8% interest instead of investing it is financially illiterate
I owe 130000 on my mortgage with a 2.15 interest rate. I am considering taking the net of my RMDs which would be about 2500 per month and pay that against principle
There is no such thing as front loading interest in mortgages. You simply owe the highest amount to the bank on the first payment you make, which means the interest portion of the payment is the highest amount of interest you could ever pay in one month during the life of your mortgage. Most people don’t seem to understand this, including Humphrey.
In conclusion, don't buy a house in the US.
What I don’t get is yes a mortgage is 3% maybe but that’s for hundreds of thousands which is usually a lot bigger that 10% of a couple thousand dollars. You need to account for amounts behind the percentage benefit.
We had an automobile accident earlier in life and that mortgage payment damn near sank us. After that, we decided mortgage was the priority. Guess what? It was a good decision because when renewal came up, mortgage rates had more than doubled but we had already paid off our home. 49 and mortgage free is pretty great! Now we slam $20,000 to $40,000 yearly into investments…. depending on income.
I don’t know anything about investing…. BUT I had a chance to pay off my home, owed $120k @ 5% interest..
All I know is that I’m not paying $700 a month in interest anymore…. Period.
And I’m alllllll fine and dandy with that. Now I live mortgage-free..
In the comparison of investing vs overpaying a mortgage with $500 per month, the investing scenario shows compound interest over 25 years, but the overpayment scenario means the mortgage is payed off in 16 years 10 months so the time horizon is shorter. Presumably after you have paid off your mortgage you could then switch to investing. Shouldn’t we be comparing scenarios over the same time horizon? If you invested $500 per month for just 16 years and 10 months, presumably the two scenarios would be equivalent? The benefit to investing presumably comes after this point, by which point you have built up a savings balance so will earn more interest than if you started investing from that point?
I paid up all my mortgages in 2yrs while working with a Financial Adviser. I’m 50 and my husband 54 we are both retired with over $3 million in net worth and no debts. We got to realize that the secret to financial freedom is making better investments.
Can we talk about the potential loss in investment value due to taxes when you withdraw? Assuming you're investing in an account that isn't tax-free towards the gains. Because I think that's worth considering it in this equation as it's not ALL the money you get to keep for some people.
Very helpful video, thank you!
This is fundamentally wrong. Mortgage is amortization. Investment is compounding. Essentially mortgage is the reversal of compounding, and they are calculated the same way, just upside down. The interest you pay today is the compounded interest of the principals you owed throughout the next 30 years. Roughly all you need to know to make the decision is – compare the mortgage rate to the investment return rate.
Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got to talking about investment and money. I started investing with $150k and in the first 2 months, my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and get more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family.
Successful investing is hard work because it means disciplining your mind to do the opposite of human nature. Buying during a panic, selling during euphoria, and holding on when you are bored and just craving a little action. Investing is 5% intellect and 95% temperament.
Mutual funds or Index funds which is a better buy right now? just got my lump sum inheritance and would love to put my money to work, so i can earn in dividends, i'm also looking at paying mortgage where rates are not so high.
I am from Germany and I have a deal with the bank that I can pay an additional 5 % per year directly. The mortgage was 330.000 Euros at first and so it is 16.500 Euros per year. The good stuff about it: the real mortgage rate is paid by us and I save the rent we get for the house from the tenants, so I can pay the 16.500 usually every year in October. The only problem: the contract is for 12 years only with the bank, and so after this, we have to see how much mortgage is still left and more importantly, how high the interest rate is at this moment because we have to take another contract and I am pretty sure we will not be able to pay off the 100.000 left the moment the old contract is due. But I am sure we will need less than 30 years. For our own house, we needed 10 years. Was a hell ride, but it is debt-free now, very important if you want another property here in Germany. The interest rate for the first house was 4,33, the rate for this house here is 2,33
Thanks for the video! I've been trying to calculate the best path forward as I'm in this scenario now. I think the two cases are a lot more similar than may have been suggested in this video (LONG analysis ahead, sorry!)
I used the 8% interest stocks vs mortgage example from the video (Let's assume no taxes on the stocks since 8% already bakes that in). If you start with a 400k loan 5 years in, that's about 380k left. The payments were 2935/month. You have an extra $500/month to dedicate to either stocks or mortgage payoff. Consider the two scenarios:
Scenario STONKS: You put the entire extra 6000/year into stocks, getting you 213k by 16.75 years (100k invested). You will have 211k left on your mortgage, which will take 8.25 years to pay off. You will have paid a total of 690k (590k towards home loan, 100k towards stocks).
Scenario HOME: You put the extra $6000/year into mortgage, so 3435/month instead of 2935. The loan is fully paid in 16.75 years, and you paid a total of 690k (690k mortgage, 0k stocks).
Now, what about the next 8.25 years? Well, STONKS continues contributing the spare $500/month to stocks, resulting in a total of 473k after 25 years (assuming the same 8% interest). Scenario HOME now has the full $3435 to put towards stocks per month, since the loan is paid off, so we do. After 8.25 years of 8% interest, we have about 470k in stocks. At the end, both scenarios paid off their homes in full after 25 years, and have nearly the same in stocks. (This obviously assumes very smooth stock performance, and in reality most rises come from random spikes and its better to have money in the market longer since maybe those last 8 years weren't very good, etc.).
So STONKS ended up paying a total of 880500 on the loan, 150k on stocks after 25 years. HOME paid 690435 on the loan, and 340065 towards stocks. Both of these sum to $1,030,500, and both have about the same in stocks. This makes sense, because both of these scenarios are approximately equivalent. Paying off the mortgage at 8% compounds just like stocks do, because if you hadn't paid that principal off, it would continue compounding every year.
The net lesson here is that stocks provide better average returns, with risk and taxes, whereas the mortgage offers guaranteed returns that are likely more modest. My mortgage rate is 7.5% right now so I'm currently plugging money into that. When rates drop, I may refinance and even pull some equity out to put into stocks since at that point it would perform better on average (assuming mortgage rate is 4-5% or lower, etc.)
I'm at my second home at 38 and for me it's definitely paying my mortgage early. I have developped a personal hate against debt and I have enough in savings to have meaningful investments that I follow religiously. I'm getting in and out the market based on my reading and different indicators.
You failed to consider the implication of Taxes. All that investment growth is TAXED!
Pay off the house. Pay off credit cards. Pay off student loans. Pay off car/s. The interest on all that debt is what holds you down.
I really feel you should have factored in inflation to this equation. A 300,000 dollar loan from the bank is only worth 150,000 in 20 years with average inflation.
Investing in the stock market is glorified gambling.
Paying off your mortgage is a safety net. Lose your job and get a pay decrease? No big deal. The bulk of your earnings go into mortgage. Paying bills Shouldn't be a concern with a pay cut.
I’ve been saving for a long time instead of investing, and right now I only have about $516k. I'm not sure how to make it grow, considering all the inflation, into something substantial that I might use for retirement. I’m just here for ideas
Are you taking into consideration 3% over 1M? That’s what California housing market is
I used to study for actuary exams so I just think on liabilities matching where the payment is taken from my brokerage account that gets dividend checks to match the loan assuming a low rate. otherwise I probably would just pay it off.
You didn’t account for home appreciation. The key question is: where is your money working harder for you? If your investments, like in the stock market, are earning 10-15% while your mortgage rate is 7%, then it's more beneficial to keep investing rather than paying off the mortgage early. By paying off your home, you're essentially tying up $500k or $700k that’s not generating returns. That money only works for you again if you take out a loan against it.
i think the guy confuses mortgage interest and home appreciation. You don’t compare stock average annual interest to mortgage interest.
Wrong. Paying off your home will decrease your credit score because of the change to debt ratio to available credit.