Here’s a question I hear a lot: should I pay off my mortgage, or invest that money instead? Both strategies can yield incredible results for your budget, your family’s future, and your overall finances. Unfortunately, there’s hardly ever a straightforward answer, but on today’s show I’m going to help you weigh your options.
On this episode of Investing in Real Estate, we’re going to talk about the benefits of investing, as well as paying off your mortgage. I’m going to give you a few main points to consider before you make this decision. Click play to learn more!
More About This Show
Buying real estate changed my life, and I’ve watched it transform the financial situations and futures for many families we’ve worked with at Morris Invest. After all, investing in real estate is the #1 way to build wealth in this country. The benefits are endless. Buying real estate offers passive income, a hedge against inflation, tax benefits, and more.
As for the mortgage, housing is the #1 expense for most Americans. The average mortgage payment in the United States is above $2500. And on a 30-year mortgage, that really adds up over time. Paying off your mortgage can give you a lot of freedom in your budget and cuts down the amount of interest you pay to the bank.
For me, when I learned a strategy to pay down my mortgage fast, I was quick to put it to work, and then I wrote a book about my experience. How to Pay Off Your Mortgage in 5 Years is available on Amazon, and the Kindle version will cost you less than $5.
If paying off your mortgage is something that’s on the horizon for you, I highly suggest grabbing a copy of the book. In How to Pay Off Your Mortgage in 5 Years, you’ll learn about the components of a mortgage and how to dissect your specific loan. We’ll even give you a spreadsheet that you can use to see exactly what accelerating your payments would look like.
But from time to time, I hear this interesting question: what should you do if you’re trying to decide between paying off your mortgage and investing in real estate? This is such a smart and interesting question, and it’s one that I’m happy to help you explore.
First, let me say that I’m not a financial advisor, and I won’t be able to make this decision for you. I can’t tell you what to do. Like I said, both are excellent strategies that can make a huge impact on your financial well-being, and there are always pros and cons to everything.
But if you’re weighing this big decision of whether to pay off your mortgage or invest, I’m going to give you a few main points to think about, so you can make the right decision for yourself and your future.
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First, you should know that while there are many benefits to paying down liabilities, you’re not making your money work for you in this scenario. You’re just dumping all of your extra funds into paying down a loan. You’re giving it all to the bank. You might see better results through buying performing assets that produce income, depending on your personal situation.
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Consider the interest rate on your mortgage. Are you locked into one of those historically low rates? If your rate is in the 2-4% range, maybe there’s no rush to pay it down? It’s up to you to decide, but you’ll probably never snag a mortgage at that rate again.
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Ask yourself how much the burden of your mortgage is weighing on you mentally. Some people have higher debt tolerances than others. If the thought of carrying this debt for 30-years is disrupting your sleep and hurting your health, prioritize paying it down.
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What kind of returns can you expect on a real estate investment? At Morris Invest, our build to rent properties offer an IRR of at least 18%. Personally, I find that hard to turn down. But if you’re looking at a deal that is a questionable investment, maybe you could pass for now and work on paying down your mortgage first. Never fudge the numbers when you’re buying an investment. This isn’t the time to hope for the best. Analyze your deal and weigh it against the interest rate on your mortgage.
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Ask yourself this: why can’t I pursue both goals at the same time? Calculate how much extra cash you’re working with every month and determine if there’s a way to split the funds up between two goals. Maybe you could just throw a couple hundred extra dollars toward the principal balance on your mortgage or make an extra payment every month… and then use the remaining funds to save up for performing assets like real estate investments.
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Another idea is to focus on buying rental properties first. Then as you build up cash flow over time, you can use it to fire at the balance of your mortgage.
At the end of the day, there’s no right answer to financial questions like this. Choosing whether to pay off debt or invest is a very personal decision. You’ll have to weigh the pros and cons for yourself, run the numbers, and determine what will have the biggest positive impact on your life. So while I can’t give you the answer, I hope this video gave you some key points to think about.
If, after applying everything you learned today, you still have questions about how to invest while carrying debt, I encourage you to book a call with my team so we can see what makes sense for you individually. You can schedule a free 30-minute call at morrisinvest.com.
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DISCLAIMER: I am not a financial adviser. I only express my opinion based on my experience. Your experience may be different. These videos are for educational and inspirational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. There is no guarantee of gains or losses on investments.
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