I think a lot of people had this same experience last year. You are not alone!

Thanks guys for replying to my comments! Yes, we have to pay $277 each month into escrow. In that case, we would only earn $144,732, which is even less than before.

Paying off the house is definitely reduces the money we earn later on. I think the only caveat is that it will make us feel better if the market happens to crash. In that case, then we need the extra money that we used for mortgage to buy stocks for cheap :) My husband thinks that we are close to a huge recession due to the US government being so much in debt and still spending money like no tomorrow. So he is leaning toward paying off the mortgage for ease of mind.

No for the interest thing, because paying off the mortgage 6 years early IS the interest saved. So no need to add anything else.

But I see the mistake you found in the first calculations… From the original note it looks like the principal and interest portion of the payment is $1,455 and then they want to add $268 to make $2000 total. But $268 + $1455 doesn’t = $2000. So maybe taxes and Ins are included?

HM – you gotta run your numbers again! (but I highly suspect you’ll come to the same conclusion – invest the excess, don’t pay down your 2.5% loan because you can make a better return elsewhere typically)

Don’t you have to include the interest saved from paying the mortgage off early (6 years) with the invested amount of $178,321 to get a more accurate amount.

Also does the $2,000 mortgage payment include taxes and insurance? If so then you would have to subtract those amounts from the $2,000 payments as you still would pay them after the mortgage is paid off.

Thanks Joel!

Our initial thought is to just round up our monthly payment to $2000, but I think we will just put the money straight to $401k instead and try to max that out. If we have any other money left over, then we will put it into mortgage.

Thank you for the confirmation, and the extra information. I really appreciate your help and your awesome blog.

HM,

Thanks for being a long time reader! And I’m glad you’re liking our stuff still even though the legend J$ is gone.

Your math looks correct! It (almost always) works out better to invest extra money vs. pay off your mortgage early. But, for some people, they would prefer to have less risk, and are happy to give up the higher return. One example would be people that are trying to retire in the next few years. They may not want to go into retirement with a mortgage, so they feel paying off their mortgage is a better option. Others can’t sleep at night with large amounts of debt. Others have PMI and really should pay down the mortgage.

It sounds like you are in none of those scenarios, so investing is a better option (mathematically).

Couple other things to consider…
– You’re comparing a mortgage interest rate of 2.5% which FREAKING AMAZING and probably the lowest people have ever seen in their lives. The reason there’s a big difference between your two outcomes is because the mortgage rate is so low! Your mortgage is a great advantage. Keep it! Traditionally, if someone had a mortgage at say 6%, the math outcome would be much more close. That’s why this is always an ongoing debate. Make sense?
– A mortgage also gives you tax deductions and advantages (depending on how you file – you can claim mortgage interest). So in some ways, it’s even better to invest elsewhere vs. pay off your mortgage.
– Some people are not as disciplined as you and I, and if they don’t pay off their mortgage, they would blow the extra money on “crap”. So paying down a mortgage is sometimes a forced savings plan for people. (Your math is only good if you stick to the investing plan :)
– Lastly, this is why people disagree with Dave Ramsay a lot. Debt is not always bad – it can be used as a tool if you handle it correctly. They call it “good debt”. Your mortgage (and specifically the rate you locked in at) is GOOD debt.

Hope this helps! Congrats on doing the math to confirm. You can rest at night knowing you’re making an extra $150k keeping your mortgage and only making minimum payments. Math doesn’t lie. :)

Cheers!
Joel

I have been a follower of eliteedgemoney.com for about 4 years now. eliteedgemoney blog has inspired me to start a budget and track my net worth. I have very much enjoyed your blogs following J Money.

I have a question. It is the popular question and for the life of me, i can’t figure the logistic of the answer. The question is: Should I pay off my mortgage early or should i invest?

Here is my math, and I will be completely honest:

1. We are currently owning a home with a mortgage of $365,969 with 2.5% interest rate. Our principal + interest = 1454.9. We don’t have a PMI. We just bought this home on October 2020.
2. If I use Dave Ramsey calculators:
– Paying off mortgage early: https://www.daveramsey.com/mortgage-payoff-calculator
– Investment calculating: https://www.daveramsey.com/smartvestor/investment-calculator
*If I pay an additional $268 (to round up our monthly payment to $2000), we will finish paying the house in May 2044 (6 years early). If we then put all of the house payment ($2000) into stocks for the next 6 years, we will earn about $178,321 in stocks, assuming 7% interest rate.
* If I put the $268 in stocks for 29 years instead and don’t pay off the house early, we will earn about $301,812 in stocks, also assuming 7% interest rate.

The difference is significant. Then why should there be an argument of paying off the home early? Would peace of mind worth ~$123,000? Did i do the math wrong or is there any mistake in my logic?

Thank you so much for your time and your help.