Fund retirement or pay off mortgage.

I get this question a lot in my classes. It is better to pay off a mortgage or fund retirement? This is one of those decisions that depends on what one means by better, which sounds like a cop out but really it isn’t.

The debate boils down to this…

If your interest mortgage interest rate is 4% and you pay extra on your mortgage you are making 4%. If you can make more than 4% investing you will make more money investing.

But that does over simplify things a bit. And doesn’t answer the question “is it best for you”?”

Mathematically, you can make more money by not paying off a mortgage if your interest rate is low enough and you have a good investment strategy, however that may not be what you mean by this decision. Some people would be served better by the freedom a free and clear house can bring. Maybe you want to start a business or change careers or go into the mission field. Having a free and clear house could make that much easier.

Folks like Dave Ramsey are big proponents of paying off your mortgage, it is one if his big steps in accomplishing financial peace. And I think I would argue that it is probably best for most people, simply because most people aren’t good at managing their money.

Thoughts from around the web…

http://twocents.lifehacker.com/money-advice-the-experts-don-t-agree-on-paying-off-you-1607494999

Pay Off Mortgage Early vs. Save More For Retirement? Digging Deep Into The Details

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Fund retirement or pay off mortgage.