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Should you pay off yourmortgagebefore you start investing?
The answer could depend on whom you ask.
In other words, which action will put you in abetter financial position?
Sethi says your mortgage interest rate is the key factor that determines this.
If yours is 6% or higher, you should have a go at pay it off faster.
However, Sethi says you shouldnt pay off your mortgage faster if its below 6%.
This is because the math shows you might earn more than 6% fromrelatively low-risk investing.
If your mortgage interest rate is 3%, theres no reason to pay it off faster than needed.
This can add up to hundreds of thousands of dollars over the life of your mortgage.
But it works only if your interest rate is low enough.
For example, most of us consider more factors when making decisions than whats optimal financially.
These can include family circumstances, our goals and the emotional impact ofour financial decisions.
Thats why Sethi says you should also consider psychology when deciding whether to invest or pay off your mortgage.
Just confirm you recognize the financial sacrifices you may be making by doing so.
Would you still choose to get rid of the debt just to simplify your life?
This is the kind of analysis Sethi says we should all do when deciding how to allocate our finances.
Does Psychology or Math Matter More?
Sethi says we should consider psychology and math when deciding between investing and paying off a mortgage.
But does he say which point of analysis should be the priority?
Other Factors To Consider
There are other factors worth considering, too.
Here are four that could impact your decision.
Age
Age becomes important as you get closer to retirement.
For example, maybe your income will drop once you quit working.
If so, it could be smart to pay off your mortgage in advance.
Doing so could make your retirement much less stressful.
Future Goals
You should also consider your future when making this decision.
This could be important if you have expensive plans coming up, like traveling or buying a boat.
Serious market crashes can also take years to recover from.
You could have a child, get married, move across the country or simply change your goals.
These situations can all impact the optimal way to manage your money.
Thats why its smart to build some flexibility into whatever strategy you choose.
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