Is It Better to Prepay a Mortgage or to Invest?

1 comment May 27th, 2008

  Wendy M. Blair, CFSC 

This question seems to come often, especially, when markets are volatile. It may seem difficult to justify investing funds when the markets are going down, when those funds could pay down your debt.   However, the best way to answer that question is to “do the math.”  There are savings calculators available on line.  These savings calculators illustrate how much money you could have at the end of the mortgage period by saving instead of prepaying.  Also there are mortgage calculators available on most financial institution websites and other sites to help you determine how much mortgage interest you would save by prepaying your mortgage.  Unfortunately, running the numbers doesn’t always give you the right answer.  If you are concerned about job security or are nearing retirement and worrying about the debt is a major concern, than prepaying your mortgage may be the better option.  Like most investment strategies the longer the time horizon you have the better off you are investing with a globally diversified asset allocation model combined with a low mortgage interest rate.  A great website for financial calculators is www.asec.org.  The calculator tab includes; savings, mortgage, budget, college savings, and many more.