Considerations Against Making Additional Payments on Your Mortgage
Primarily, I maintain a steadfast belief in the paramount importance of settling one's mortgage prior to retirement. Despite the potential presence of a low interest rate on the mortgage, achieving a mortgage-free status remains the optimal course of action.
Why Paying Off Your Mortgage is Your Best Choice
Guaranteed Increase in Net Spendable Dollars
Despite a seemingly low mortgage interest rate of 3%, paying off your mortgage liberates monthly payments, effectively augmenting your net spendable income.
For instance, with a $100,000 mortgage refinanced for 30 years at 3%, paying it off releases $422 monthly or an equivalent of 5.07% interest on the $100,000.
By settling the mortgage, you secure a guaranteed 5.07% return for the remaining term of the loan, typically spanning 27 years.
Need for Higher Returns to Break Even
While a 3% mortgage rate appears modest, earning over 5% with investments becomes imperative to break even.
The capricious nature of investment returns exposes you to risks, with no certainties of attaining higher returns.
Market Volatility and Risk
Historical market data underscores the capriciousness and volatility of investments.
Instances such as the S&P's 40% decline from 2000 to 2002 and the ensuing 15-year recovery period elucidate the perils associated with solely relying on investments.
In contrast, settling the mortgage furnishes a tangible and immediate benefit, fortifying financial stability and mitigating exposure to market fluctuations.
In Summary
The decision between paying off your mortgage or investing hinges on the balance between assured returns and uncertain market outcomes. Despite the allure of potentially superior investment returns, the security and tranquility conferred by a paid-off mortgage often outweigh the hazards associated with investment volatility.
More Related Articles
© 2024 thecleverhack.com. All rights reserved.