Quote:
Originally Posted by DaFace
If your interest rate on your mortgage is particularly good (say, less than 5%, and especially if you're below 4%), you could likely come out more positive by just paying the minimums on your mortgage and investing the money elsewhere. This is particularly true since mortgage interest is deductible, so your effective interest rate is probably even a little lower.
So as an example, if you've got a 4.0% APR on your mortgage, your effective interest rate is probably closer to 3.2% (assuming you're in the 25% tax bracket). Compare that with the rule-of-thumb rate of 7% that you could get in a typical set of investments, and you're actually leaving money on the table by paying off your mortgage early.
That said, there are benefits to knocking out a payment to give you more flexibility too. All personal finance is a bunch of rules that just depend on your situation and priorities.
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Agreed and I'll add too it. They say in order to make more in investment returns compared to saving on mortgage interest payments, your stocks need to generally average 2-3% more growth than your mortgage interest rate.
We refinanced last year into a 3.6% rate. I need to roughly have my investments gain 6% to come out ahead for putting more money towards investing, rather than paying off the mortgage early. So far, we are definitely coming about ahead by paying the minimum mortgage payment and dumping extra cash into investments.