*This post may contain affiliate links. Please read my disclaimer for more information.
Guaranteed Returns on Your Money!!!
Now that I am a homeowner and back in debt (mixed emotions right there) I have a decision to make.
Do I pay the house off early or do I take that money and invest it elsewhere? You have to remember that I have been completely debt free for a few years now so I feel like a newbie all over again learning how to accelerate debt payments and become debt free.
I know there are going to be the naysayers out there that tell me I would be stupid to pay off my home early. I have a great locked in interest rate and I can get much better returns on my money by investing it elsewhere. I totally get that point-of-view. And more than likely they are right. My current interest rate on my home is about 3.5%. If I have the slightest bit of knowledge in investing then it should be relatively easy to get returns that are better than 3.5%.
There is no guarantee that I will get better than a 3.5% return in the stock market but I am young enough that I can afford to take a lot of risk. If I were to lose all of my money and had to start over completely I would still have plenty of time to earn back that money.
I believe in diversifying however. And not just within my retirement investing.
Yes, I think it is great to be invested in a broad range of stocks which is what you get with a low-cost index fund (my preferred strategy) but I also think that it is good to have other income streams in retirement besides stocks. Investing in real estate or investing in your own business are two great examples of other places to invest money.
Is the stock market overvalued and due for a major correction? I don’t know but probably. Markets go up and markets go down. There is absolutely no way to avoid that, it’s going to happen. The issue I have with the stock market is that literally all of my retirement dollars are invested there. I need diversification.
Pay down that mortgage!
We just bought our house a few months ago and have made the first few mortgage payments. I finally got around to setting up an online account with the bank that holds my mortgage so that I can see exactly what my balance is at any time.
Kind of on a whim I decided to make an extra principal payment. It was super easy. Just click a few buttons and my principal balance went down $100. After I hit the “submit” button I took a second to think about what I had just done.
I had just made 3.5% on my $100!!!
It kind of felt good. For every $100 I throw in there I make $3.50 on my money. It’s not great returns but it is guaranteed!
A few days later I logged back on to my account and paid another $300 towards my principal. That felt even better!
Suddenly I was reminiscing about the days when we had thousands of dollars of student loans and consumer debt. Every time I paid one of those off it felt awesome! I hadn’t felt that feeling in years.
I am going to keep right on putting money into the stock market. When it goes down I’m going to keep putting money in it just like I am today. Dollar-cost averaging is my long-term plan. But right now I like the guaranteed returns I am getting by paying my mortgage off early.
Related: Why You Need New Friends
My One Hang Up
As I have thought through my strategy of paying off my mortgage early there is one big down side that I see besides the possibility of making a lesser return on my money.
What happens if I can’t make my mortgage payment?
Our mortgage payment is not a huge part of our monthly budget since we used a very conservative method of determining how big of a mortgage we could afford. However, what if something crazy happened and my wife and I both lost our jobs and couldn’t make the payment?
Our lender won’t give a rip about the fact that we have made extra payments and paid the mortgage down significantly. The bank will still want to collect their monthly payment regardless.
And yes we do have an emergency fund that we could use to get us through but once that runs out then we are in trouble!
This is something to keep in mind if you are paying down your mortgage early but if you have a solid/stable job and a fully funded emergency fund like we do then you should be alright.
Ultimately it’s up to the individual to make the decision that is best for them. I’ve made the decision that I am pretty happy with my guaranteed 3.5% return on my money. And as an added bonus, in a few years when that mortgage is completely paid off it will free up even more money for me to invest elsewhere.
I’d love to hear your thoughts on this topic. Would you rather pay down your mortgage and be completely debt free or invest that money in the hopes of getting higher returns?
If you enjoyed this post feel free to share it by clicking on one of the social media buttons below. Want to get the latest content from Millennial Legacy right to your inbox? Fill in your email address at the bottom of the page. Don’t worry, we don’t share your email with anyone and we never spam.