Here’s a question we get often when we meet with clients. Is it better to pay down your mortgage, or invest the extra money?
Let’s look at paying down a mortgage with extra cash. For example, say you just started a 15-year, $300,000 mortgage at a 3.00% interest rate. If you make one extra $10,000 payment at the end of each year, you’ll 5 eliminate 5 years of the total mortgage term and you’ll have the house paid for in 10 years! By eliminating those last 5 years, you’ll save about $24,000 in interest!
The other option is taking that $10,000 each year and investing it in the stock market. Let’s assume a conservative 6% rate of return each year. That $10,000 saved for 10 years, for a total of $100,000, could turn into almost $132,000. That’s earnings of $32,000.
In this example, investing the extra cash gives you more money in the long run than paying down a mortgage. Though it varies person to person, we’ve seen mortgage rates around 3% for the past couple of years. When you can borrow money at such a low interest rate, it makes the earning potential of the stock market so much more attractive.
However, it’s not bad to pay off a mortgage early, and it’s excellent to have your house paid off going into retirement. Let us know if we can help you look at different scenarios of what to do with extra cash.
About Forman Investment Services
If you are not familiar with us, Forman Investment Services is an independent practice located in Columbus, Indiana focusing on Family Wealth Management and generational planning. We serve clients not just locally, but across the country and globe. In today’s day and age, especially after experiencing COVID, we are very comfortable communicating from any distance whether it be in person, a Zoom call, or by phone. We confidently adapt to our clients lives and unique relationship in the style of communication and complexity.
Our planning encompasses much more than choosing investments, as we must consider tax/estate planning, education funding, insurance, retirement planning, and so much more. We work with a select group of clients who value time, family, and recreation, and need today’s investment, tax, and estate planning complexities coordinated for them. We also provide one-time plans to those that are not in need of an ongoing advisor relationship yet to help get you on the right track.
Reach out to us for an introduction if you are interested in learning more!
Any opinions are those of Forman Investment Services and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
Raymond James financial advisors may only conduct business with residents of the states and/or jurisdictions for which they are properly registered. Therefore, a response to a request for information may be delayed. Please note that not all of the investments and services mentioned are available in every state. Investors outside of the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this site. Contact your local Raymond James office for information and availability.