Finance Tip Friday #35: Pay Off Your House or Invest?

Buy Rent House Home Sell Loan  - mohamed_hassan / Pixabay

I get asked this question often from nurse practitioner entrepreneurs, and the answer is always the same: it depends!

In my opinion, I think paying off your primary residence mortgage is one of the most freeing things you can do. I paid off mine and I have zero regrets. It is nice to know that you have a place to live free and clear. You cannot put a price on the piece of mind owning your home outright can do for you.

Now, is paying off your home the smartest move from an investment standpoint? Not really… Most people have refinanced their mortgage over the past 2 years when interest rates were low. Paying 3-4% interest on a mortgage is not that much money in the grand scheme of life. The argument to paying off your mortgage early is that you can earn more than 3-4% on your money in another investment.

What types of investments? These 3 predominately:

The stock market.

Rental real estate.

Your business.

Generally speaking, and by looking at historical averages, you will make more money in the stock market than paying off your mortgage. Historical average returns hang around 10% per year. So, if your mortgage interest was higher than 10%, then you are better paying it off vs. investing.

You will generally make more money in cash flow and appreciation off rental real estate than paying off your mortgage. Why? Because you have someone else paying it off for you and it should not take much of your time.

Your business is the fastest path to wealth as a nurse practitioner though, no question about it. Tell me another investment where you can invest $10,000 and receive a return of $100,000+ a year? You can’t. That is why businesses are the BEST investment.

So, the answer to the question “should I pay off my mortgage or invest my money elsewhere?” comes down to a few things you need to take into consideration…

Would the freedom and piece of mind that comes by paying off your mortgage be worth it for you and your family? Would you sleep better at night? Would you feel more secure? Then if so, I say pay off your mortgage. Like I said, I have no regrets doing so and recommend it. It helps you become indestructible from a financial standpoint. Plus, it helps you with having “F.U.” money if you know what I mean…

Another thing you need to consider though is the long-term growth your money can have if invested appropriately vs. paying off your mortgage. If you don’t care about paying off your house nor the piece of mind that comes with it, then the SMART financial move is to invest your money elsewhere and just pay the minimum payment on your mortgage. You will end up making MORE off your money if you invest it rather than pay off your house.

At the end of the day though, there is no right or wrong answer to this question. It just comes down to your wants, desires, and goals. So, really think about what is best for you and your family when determining if you should put extra money towards your mortgage or invest it elsewhere.

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