Should I Pay Off the Mortgage Early or Invest?

This has always been a very tough question to answer. Is debt freedom your dream? Many people recommend that you never pay your mortgage off early because of the low interest rates and tax deductions. Tons of people (very popular in California) are now going with 40 year mortgages and never plan to pay them off. Others love to be 100% debt free for peace of mind and so they can focus their money on other things.


I believe that once you are free from all your other debt, you should then focus on the mortgage. Many people feel that mortgages are NORMAL and that they will always have one. Don't buy more home than you can afford and you will find out that you should be able to pay off your mortgage 3x faster than scheduled. You will still have time to invest once the mortgage is torched.

The Stock market can be risky, but a paid off home is yours to keep. If you have a 5.5% mortgage, by paying it off early you are effectively getting a 5.5% return on the extra payments. A guaranteed 5.5% is pretty good in these tough economic times. The mortgage interest is tax deductible (only if you itemize) but it is NOT worth paying the bank the extra interest. You lose, the bank wins.

Want to retire early? A paid off home is a good start! If you have a aid off home, you know exactly what you have (No more payments and 100% home equity), but with the stock market (or any other investment) you never really know what will happen. You may lose almost everything in the rare event of a total collapse. You should still invest, but only get intense about it after your home is paid off. Is this the Maximum Potential Strategy---Probably not, but it is much safer and might allow you to sleep better.