Paying off your mortgage is a great achievement, and it also frees you from the largest monthly expenses you will ever have to face. One couple in their 50s has an opportunity to make additional mortgage payments so they can get out of debt early, but they're also thinking about putting the extra money into the stock market.
The couple told Reddit that they have a 30-year mortgage at 3.55% APR and will pay it off in 11 years. However, the couple has $500 per month that they can put into the mortgage or stocks. The mortgage is their only debt, and they have $1.6 million in retirement.
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Paying The House Reduces Uncertainty
The top comment came from a Redditor who suggested paying off the house and then investing. Once the house is paid off, the monthly mortgage payments go away, and the couple can eventually make much higher contributions to their portfolio. However, age played a factor in the commenter's suggestion.
"The whole point at your age is [that] your financial life could drastically change quickly in your late 59's and 69's. Lose your job, get sick, etc., you can probably pay it off quickly unless you are a free spender," the commenter said.
There is a chance that the stock market goes down, one of the spouses loses their job, or another obstacle makes it more difficult for them to keep up with monthly mortgage payments. Tackling the mortgage now will help them become debt-free sooner, and then they will be more prepared for any challenges.
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Split The $500 Into Mortgage Payments And Investments
Some Redditors suggested splitting the $500 between additional mortgage payments and investments. Putting $250 per month into each one allows the couple to get out of debt sooner while growing their portfolio over time.
Paying additional debt minimizes interest, while a growing portfolio helps you keep up with rising housing costs. Even if you pay the mortgage, you still have to contend with additional expenses that investments can eventually cover.
"Split it between investing and paying off the mortgage. Depending [on] where you live, property tax goes up every year, so does the mortgage payment. So does the cost of living," one commenter suggested.
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Math Vs. Emotional Freedom
Some Redditors mentioned that the math works out for investing instead of paying the mortgage early. One commenter came in with precise numbers that demonstrate how much money the couple may be leaving on the table if they put all of the $500 into additional mortgage payments.
"[The] S&P 500 has averaged 10% returns since 1957. I’d rather the 10% returns over a <4% return. I bought my house at 10% down and 3.25% interest, like six years ago. The math wasn’t mathing for me to pay off mine sooner," the commenter said.
However, the math doesn't always have to make sense for a financial decision. One Redditor knew that they could make more money investing instead of paying the mortgage, but becoming debt-free offered an indescribable sense of freedom.
"I have a business degree and I’m a registered securities broker," the commenter said. "So I understand the ‘math’. But it wasn’t until I actually paid all my debt down to zero–including the mortgage–that I understood the emotions of debt and ownership. Once you’re free, you’ll get it; I promise, you’ll get it. Do yourself a huge favor and pay off that house, and bask in the thrill of knowing you are a servant to no one. It can’t be rationalized in a Reddit blog. You will only understand on the day you walk out on your back patio, breathe the fresh air, and realize that nobody can take your home from you, ever."
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