For those of you who are expecting to retire in 10 years or less, you may be bouncing around one of two ideas in your head: bulking up your mortgage payments so you can completely own your home sooner OR putting your money toward investments that could provide an even cushier retirement. When you break this down, it’s really a matter of protecting your current savings by getting rid of debt versus taking a risk for potential growth.
When looking at these two choices, it is important to consider the following when making the best decision for your particular situation:
1. Weigh All Of Your Options
Regardless of how many financial experts you talk to, you are the expert of your own personal situation regarding your money and your dreams. Never forget that you are the steward of your money, and it is your responsibility to look at every single angle, scenario, trade-off, and possible outcome so that you gain the most benefit with the least amount of risk.
2. Your Current Home Loan
The type of home loan you currently have is an important factor. If you have a 15- or 30-year fixed mortgage with a guaranteed locked-in rate, then you have the flexibility to pay it off early or stick to your predetermined deadline. If you have a 5/1 ARM, however, where the interest rate is only guaranteed for the first 5 years before it dips and spikes at the mercy of the market, then it’s of the utmost importance to pay off the loan as soon as you can or convert it into a 15- or 30-year fixed.
3. Rate Of Return Vs. Interest Rate
There are two kinds of rates to consider: the rate of return from current and future investments and the interest rate on your home loan. If you expect the rate of return on your investments to be higher than the interest rate on your home loan, then it makes sense to put some money toward investments (e.g., if your rate of return is expected to be 8% and the interest rate on your home loan is 4%). If your expected rate of return is less than the interest rate of your home loan, then it is best to concentrate your efforts on paying off the home loan (e.g., if your rate of return is 4% and your home loan interest rate is 8%).
4. Find A Way To Do Both, If Possible
Would you be happier if you could pay off your mortgage AND benefit from growing investments? If deciding to go one way or another is causing you stress, then it’s high time to think outside of the box so you can have the best of both worlds. You can always finish paying off your house first and be free to use your money toward investments after. The other option is to put your money toward investments that would actively grow your funds, and the dividends from those funds can be added to your monthly mortgage payment. Think about it, and consult a financial advisor to crunch the numbers to see which scenario brings you more relief and potential happiness.
5. Do What Brings You Peace Of Mind
Whatever you decide, you have to feel good about it. You are the main benefactor of your money, and it is in your best interest to do your due diligence and follow your gut. At the end of the day, it’s all about protecting your financial future and achieving your dream retirement.
When you are looking at whether you should pay off your loan or invest your money, educate yourself as much as you can about your finances so you can make the best decision.
Taking The First Step
Do you have questions regarding your numbers? You don’t need to figure it out on your own. Let us at ClearVista Financial work with you to figure out the ideal plan for your current situation and your unique goals. Email me at email@example.com, call 800-491-4508, or click here to book yourfree introductory meeting.
Mark Trice is an independent financial advisor with nearly a decade of experience in the industry. As the founder of ClearVista Financial, his mission is to help people find financial balance in their lives and to spend life well. Along with providing financial planning and retirement planning to pre-retirees and 401(k) plan participants, he is also an educator. He currently holds the designation of a Certified Financial Educator® through the Heartland Institute of Financial Education. Mark has offices in Austin, Brownwood, Temple, Houston, and Waco, Texas. Along with serving clients in Texas, he also works with individuals in Arizona, California, Colorado, Missouri, West Virginia, and Virginia. To learn more, visit www.clearvistafinancial.com or connect with Mark on LinkedIn.