The stock market’s long-term average return is often higher than typical mortgage rates. This simple math makes investing seem like the obvious choice. However, the best financial decisions are about more than just numbers. A pay off mortgage vs invest calculator is a great starting point, but it doesn’t account for your peace of mind.
This guide will help you weigh both the math and the personal factors to make the right choice.
The Case for Paying Off Your Mortgage Faster
For many people, the idea of owning their home free and clear is the ultimate goal. This strategy is all about security and peace of mind.
A Guaranteed, Tax-Free Return
Paying down your mortgage gives you a guaranteed return. That return is equal to your mortgage interest rate. If your mortgage rate is 5%, you are getting a risk-free, tax-free 5% return on your money.
Peace of Mind
There is a huge psychological benefit to being completely debt-free. Imagine not having a mortgage payment! It frees up a massive amount of cash flow each month.
Increased Equity for Future Use
Every extra payment you make builds your home equity faster. This equity is a powerful asset. You can use it later in life, and it can even help you understand how reverse mortgages work in retirement.
The Case for Investing Your Money
This strategy is focused on building more wealth over the long term. It’s a powerful choice for those who are comfortable with a bit more risk.
The Potential for Higher Growth
This is a simple math problem. If you can earn a higher return from your investments (say, 7% on average) than you are paying on your mortgage (say, 5%), then you will end up with more money in the long run.
The Power of Compounding
When you invest, your money starts earning money. Then, that money earns even more money. This is called compounding, and it can help your investments grow much faster over many years.
Liquidity and Flexibility
Money that you put into your mortgage is illiquid and hard to access. Money in an investment account is much easier to access if you have an emergency. A good first step is to use a mortgage calculator to understand your current cash flow.
At a Glance: Paying Off Mortgage vs. Investing
To make it even simpler, here is a side-by-side comparison of the key differences:
Key Factors to Help You Decide
The right answer for you is personal. It depends on your own goals and comfort level.
Your Mortgage Interest Rate vs. Investment Return: This is the most important factor. If your mortgage rate is high (like 6% or more), paying it down is usually the smarter move. If your rate is very low (under 4%), investing becomes more attractive.
Your Personal Risk Tolerance: Are you okay with the natural ups and downs of the stock market? Or do you prefer the safety of a sure thing? There is no wrong answer here; it’s all about what helps you sleep at night.
Other High-Interest Debt: Before you do either of these things, you should always pay off any high-interest debt first. This means things like credit cards or personal loans.
Your Renewal Strategy: Your decision might change when your mortgage is up for renewal. It’s a good idea to use a tool to calculate your mortgage renewal payment to see how your future payments might look.
How a Pay Off Mortgage vs Invest Calculator Works
This helpful tool does the math for you. It shows you the potential financial outcome of both choices over a set number of years.
To use a pay off mortgage vs invest calculator, you usually need to enter:
An invest vs pay off mortgage calculator is a powerful tool, but remember that the results will depend on your assumptions. Sometimes, a different strategy like refinancing is a better option. A mortgage refinance calculator for BC can help you compare all the different scenarios.
Get Expert Advice for Your Situation
As you can see, there is no single right answer to the pay off mortgage early vs invest debate. The best choice is the one that feels right for you and matches your long-term goals and risk tolerance.
The numbers from a payoff mortgage vs invest calculator can be confusing to look at on your own. Let our team help you analyze your personal situation and make a confident decision for your future.
Apply Now for a free, no-obligation strategy session with one of our experts.
Author Bio
As a Principal Mortgage Broker, Asim Ali specializes in creating smart financial strategies for BC homeowners. He provides expert analysis to help clients confidently decide between paying down their mortgage and investing for long-term wealth.