Pay Your Mortgage Early or Invest Your Money?

Should you pay your mortgage early, or apply your extra cash to investments that may earn more than you would save on compounded mortgage interest? Jason Striegel of hackzine.com says "On the one hand, you get a guaranteed outcome with paying down your mortgage. On the other, a conservative rate of return on an index fund should have no problem beating a 6% rate over the next 30 years."

There's a great article over at getrichslowly.org that lets financial giants weigh in. The author of the blog researched respected financial commentators, including Suze Orman and Dave Ramsey, and posts the opinions of a dozen of them.

The two most-compelling factors in determining which is right for you seem to be…

1. how near retirement are you? and

2. do you have the discipline to invest wisely, at a higher rate of return than the interest you're paying on your mortgage (to me, this determiner seems to assume one would also have the knowledge to invest this well)

I'm a baby-boomer and well aware I'm in an influential majority of the population. Perhaps that is why I constantly write about paying down your mortgage.

In the first two years of using a money-cycling technique I've written about in an article on using your HELOC to pay for your house, we cut $70,000 off our mortgage–without cramping our lifestyle. Our friends and neighbors--many in our same age group and similarly early in a mortgage--liked the idea so much, they persuaded me to write a guidebook they could use to paydown their own mortgages.

We're acutely aware if the economy goes to hell in a handbasket, we'll feel much more secure, and have more financial freedom, when we're not sending $1183.08 to Wells Fargo Mortgage every month. In the few years we've been using our house to pay for our house, we've just about cut our mortgage in half. We aren't using any fancy mortgage accelerator software. We're keeping our books the same way we did before we started paying for our home in half the time. Were we not also improving the property, we'd be finished in a third the time.

We're also investing.

"Do a little bit of both" seems to be the most reasonable consensus I can pull from myriad discussions, blogs and articles. One key, of course, is how much will you really earn on your investments and at what risk? For those who advocate not paying off your mortgage, like David Porter who's proud his Scottsdale home doubled in value in three years, what will you do when things change? Real estate in the Phoenix area, which includes upscale Scottsdale, is in the toilet right now. While that may not be Mr. Porter's case, many people who've not been paying off their mortgage are finding themselves in the disconcerting position of owing more on their homes than the properties are worth.

Fortunately, owing more on your home than the property is worth is almost impossible if you're paying off your home years sooner. Read more about how to use your house to pay for your house. Or simple tips for paying off your home years sooner.