Are you tired of paying your mortgage?
I know I am.
Does having this massive debt weigh heavy on your shoulders?
It feels heavy to me.
Do you have the urge to pay it off early?
But does it make financial sense to focus your money on paying off your mortgage early?
Let’s take a look.
Find Your Interest Rate
Take a look at your loan documents or mortgage statement.
Those documents should have your interest rate on them.
But if I had to guess, you already know your interest rate by heart.
The current interest rates at Bankrate.com range from 3.981% to 4.579%.
This assumes you have good credit.
To round, we’ll use 4.25% in our discussion.
Re-frame Your Thinking
You pay a 4.25% interest fee for the right to own something now and pay for it later.
So look at this another way.
Your bank makes a 4.25% return on the money it let you borrow.
If you pay the bank additional principle each month, you are making a 4.25% return on your money.
Can you put that money somewhere else and beat that return?
That’s up to you but I know the right answer for me.
Over the past 10 years, I’ve earned a 9% compounded annual return with my mutual funds.
And that spanned the worst economic downturn since the great depression.
So a 4.75% margin makes me comfortable enough to put my extra money in mutual funds.
If my interest rate was higher, I would reconsider.
There’s another tangible factor to consider.
And it all depends on how many working years you have left.
Are you retiring in 5 years?
If so, regardless of your interest rate, you should probably pay off your mortgage.
It’s not a good idea to have a mortgage in retirement.
Do you have to work for 30 more years?
Then you can get more aggressive.
There are other psychological factors to consider as well.
You can’t plug these into a financial model.
But if having debt causes you stress and keeps you up at night, pay off your mortgage.
So does it make sense to pay off your mortgage early?
That’s ultimately up to you to decide.
There are financial and psychological factors to consider.
We analyzed the financial factors but you have to analyze your psychological factors.
If your mortgage keeps you up at night, a good night sleep is probably worth it.
Are you paying off your mortgage early?
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