If you’re an investor like me, then paying off your mortgage is NOT a good investment. Let me tell you why.
00:00 Now I know many of you watching this video will not agree with me. Before you click away, watch this video, as I will go through a few ways of how to spend and grow your money in a more smarter way, than just paying off your mortgage.
00:32 The housing market has been on a tear in the last few years. New home sales reached a 14-year record, as the pandemic and incredibly low interest rates led to a buying frenzy.
The trend is continuing into 2021 with the National Association of Realtors reporting 6.7 million new homes sold in the U.S. January, this is up 23% compared to only a year ago.
As a new homeowner you may feel both accomplished and overwhelmed. You’re leaning into the popular financial advice of paying your mortgage off early.
But is that always wise?
A 2018 survey found that about half of respondents were aiming to pay their mortgage ahead of schedule. Now I’ll admit, this is something that I myself didn’t fully understand the moment I bought my first property.
There are so many home owners out there, that are willing to pay off their mortgage preferably in 20 years instead of 30 years.
02:52 Create emergency funds
Before setting sights on mortgage zero, check your emergency funds. Is there enough to cover basic expenses for several months in case you lose your job? The average “unemployment duration,” or the length of time it presumably takes for someone receiving unemployment insurance to begin a new job, is 3 months. Having at least a three-month savings cushion is ideal before putting extra toward your home loan.
03:28 Invest for your retirement
It’s no secret that money in the stock market, over the long haul, offers a better return than paying down a mortgage with a 2% or 3% interest rate. The math speaks for itself.
The S&P 500 has returned an average return of 9% percent annually over the last 30 years. Prioritizing retirement savings ahead of your mortgage just makes more financial sense.
Before settling on paying down your mortgage early, consider refinancing first.
I realise this seems like a step in the opposite direction, since a refinancing “resets” the payoff clock.
There are 2 sides to this story.
The coolest part of refinancing is that all options are open again, and you may pick whatever you like. You can either pick a super low interest rate loan that is available at that very moment. So instead of having a 3% interest rate on your mortgage, you could all of a sudden get a mortgage rate of 2.5% for example, and that half percent will give a hundred bucks per month, straight away.
You could also let a real estate appraiser come by your home, because once you’ve added more value to your home. All the money you’ve put into your home is set in stone, meaning all the money you’ve pumped into your home, can’t be used. It’s emotional value, not actual money value.
But You could take out all the money you’ve put into your home, the moment you choose to refinance it, after you’ve had an appraiser come by. With that, you have a new mortgage, with a lower interest rate.