In a recent “non-scientific” poll, YouTuber Marko from WhiteBoard Finance shared that 75% of some 3000 Instagram respondents said they would invest, while just 25% said they would pay off their mortgage with their “laser beam” overage in their budget. I think I like the whiteboard cuz I’m a teacher… It’s an interesting question, but what is the best thing to do? That may depend on a few things like your age, years to retirement, and level of risk aversion.

Interest Rates vs. Return on Investment

In addition to low interest rates, the economy is experiencing the longest running bull market in history, Starting in March 2009, the current bull market is going on 12 years old. The previous bull market of the 1990s lasted 9 years, 5 months. I think this is where the dilemma originates…

1) Do I Pay Home Off Early?

If you’re working the Baby Steps of Dave Ramsey’s The Total Money Makeover, paying off the home mortgage is Baby Step 6… the step I’m on.

Pros

With a paid-off home mortgage, we’d still have taxes and insurance plus the monthly utilities. What a calming to know that in the event we lost a source of income, we could easily keep the house afloat with no mortgage payment. As Dave says, the grass feels greener under your feet when you own your home free and clear. And there is no faster way to increase net worth than by making “big, hairy” principle payments on the mortgage. This is because — due to risk — homes are not as likely to lose value as risky investments.

Cons

However, there is the inflation hedge that low-interest long-term leverage brings. With a fixed-rate mortgage, our payments will never change. If we were to take all 30 years to pay it off, we’d be using 2020 dollars to makes the same payments throughout the 2030s and 2040s. With inflation, our payment may seem like a drop in the bucket in years to come. Since we do have a stable income, we were in the process of stepping over Baby Step 6 to Baby Step 7.

2) Or Do I Invest?

Pros

The upside to dollar-cost averaging when everything in the market is on fire is exciting. What if? What if the market remains on fire for another five years? What if our gains enable us to retire sooner rather than later? Like I said, it’s exciting to think about.

Cons

But what if capital gains tax goes back up? What if income taxes increase? Many experts are now warning that the longest bull market coupled with the uncertainties of a new president could mean a market correction is imminent. The risk of investing extra may not be worth it with so many unknown risks…

Debt is Risky

If you’re at a point where you’re be pondering this dilemma, you already have $10,000 to $15,000 in an emergency fund. And you are investing 15% into tax-favored retirement accounts.

A bird in hand is worth two in the bush. Click To Tweet

In my opinion, keeping mortgage debt to invest is kinda like borrowing money to invest, especially with a pending market correction. Even though our mortgage interest rate is very low, paying our mortgage down is like the bird in hand being worth two in the bush. Up until a few weeks ago, I would have been in the “Invest More Camp.” But the more I ruminate, the more I start to think that this may be a decision that is connected to mine and my wife’s current age. We are risk-averse. And we may be getting close enough to flirt with retirement if we don’t do anything stupid money-wise.

As Always…

Thanks for reading! I hope this information provides food for thought. Remember that I am not a certified financial planner, a certified public accountant, a licensed real estate agent, etc. My content is for educational purposes. I am a math educator who happens to have a finance degree. Like they say, never take financial advice from a math teacher! (Do they really say that?)

But you should spend less than you earn, invest the difference, and stay out of debt!

I would so appreciate your sharing my content with anyone you feel could benefit. And if you would like a free exploratory conversation or just want to shoot the breeze about personal finances, call me and leave a message or send a text to 570-731-0425.