How to Decide to Pay Off Your Home in Albuquerque or Invest
Looking for something to do with extra cash? If you own a home in Albuquerque, you could pay off your mortgage. Or you could invest your money in something else. Which option is better?
There's been no shortage of debate on this matter, with great arguments on either side. But in the end, it's a decision that will have a huge impact on your finances.
Which way should you go?
You need to consider these variables:
- Your home’s current market value
- Your mortgage interest rate
- Home appreciation in your area
- Your income tax rate
- Expectations for inflation
- An assumed rate of investment return
A certified financial planner named Justin Goodbread analyzed these variables by sung national averages in order to compare various scenarios between investing and paying off a mortgage.
As it turned out, the math favored investing. But the math isn’t the only thing you should consider. It also depends on your own situation. Goodbread offered two rules of thumb to decide:
You should pay off your mortgage early if you’re a conservative investor, in a low tax bracket with a high mortgage interest rate.
And you should invest if you’re a more aggressive investor, in a high tax bracket with a low, 30-year, fixed mortgage interest rate, and if you’re younger than 50.
What are some reasons to keep your mortgage?
- Maintaining liquidity. Paying off a mortgage will leave you without a cash cushion in an emergency.
- Your home’s value isn’t affected by a mortgage. The value of your home will increase over time. But this will not affect how much you owe on your mortgage.
- Mortgage interest is inexpensive. Your mortgage is secured by your home’s value, and this keeps interest rates much cheaper than credit cards and personal loans. Even better, the interest is tax deductible.
Of course, in the end, the choice of investing vs paying off your mortgage is one you should make carefully.
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