Is Paying down a Mortgage Early a Good Idea?
Hi I’m Erik Wolfers. I’m the managing member of First & Main Financial. We’ve been helping folks with their personal finances since 2001.
I’m going to talk a little bit today about paying off your mortgage early.
We have clients that come to us who are paying their mortgage off early. They’re paying more than they need to, to have the mortgage end sooner. They look at the amount of interest they’re going to pay the bank over the years and they make the assumption that they’re going to be better off by not paying this interest.
If you take the additional money that you’re sending to get your mortgage paid down early and you invest it, you should over a long period of time generate a higher rate of return, oftentimes a significantly higher rate of return, than the amount that you’re paying in interest on your mortgage.
And so the math is pretty simple: if I take an additional $500 a month and I save it and invest it, I will create a pool of wealth that eventually I can pay the rest of my mortgage off with later, 15 or 20 years later, and I’ll have money left over. I just created wealth that I otherwise would not have had.
Paying a mortgage is not a lot of fun, a lot of people don’t like it. But if you are working and you have a long time to work and you’re likely to stay employed and work until a traditional retirement age, it’s very likely that you will increase your wealth dramatically by saving and investing, as opposed to paying your mortgage off early.
If you are looking for some financial guidance; whether for a one time financial plan or continuing advice on your investments, we invite you to meet with a First & Main Financial planner for a free consultation. We would be more than happy to sit down with you, assess your situation, and review our services to help navigate your financial future.