Should I pay off my $780k mortgage today with a net worth of $2.6M and a goal to retire in 10-15 years?

A Reddit poster has a net worth of $2.6 million, but he’s still in debt. Specifically, he owes $780,000 on his mortgage with an interest rate of 6.9%.

He’s hoping to retire within the next 10 to 15 years,  and he’s not sure if he should take some of his money out of his investments to pay off the loan balance and become debt-free or if he should stay the course and keep investing instead.

So, what should the poster do?

Does early mortgage payoff make sense?

In the days when mortgage rates were in the 3.00% to 4.00% range (or less), the question of whether to pay off a mortgage or invest was a no-brainer. Since it was easily possible to earn a better average annual return in the stock market while taking few risks, borrowers were almost universally better off if they kept their home loan and put their extra money into buying stocks.

Today, mortgage rates are much higher. The poster’s rate is 6.9%, and while it is absolutely still possible to earn that return or a higher one over time if he invested in the market, there is, of course, a risk associated with investing. If he pays off his mortgage early, he gets a guaranteed 6.9% return — so that creates a little more incentive to pay off the loan ahead of schedule. 

However, there are still some big downsides to paying off a home loan early instead of putting the money into the stock market, or keeping it invested if it’s already in equities. Specifically:

• Your home is an illiquid asset, and you can’t live off the equity. You may be better off working on building your investment balance so your investments can generate enough income to cover the mortgage and other costs.
• The mortgage interest deduction reduces the effective cost of interest. If you itemize on your taxes and can take a tax deduction for your home interest, this significantly reduces the costs of borrowing — and it changes your calculations in terms of the ROI of early mortgage payoff. 
• Refinancing soon could be a possibility. The homeowner may be able to refinance at a lower rate if mortgage rates go down. This could also make it much more profitable to invest rather than pay off the home loan.
• Your housing payment effectively gets cheaper over time. If you pay off your mortgage slowly over time, your payment costs you less in terms of lost buying power because of the effects of inflation. 

For all of these reasons, the poster may still be better off just paying his loan off on schedule while leaving his money in the market and continuing to invest.

That may be especially true right now, as the market has seen some major declines in recent days. If he sold any investments now, he’d likely be selling at a pretty low point and missing out on the inevitable market recovery.

A financial advisor can help you decide what’s best for your long-term goals 

The Reddit poster in this situation should likely consider talking to a financial advisor to help him decide how he should prioritize where he puts his money and whether he is better off with investments or a paid-off house. An advisor can also help him ensure he’s setting himself up for the early retirement he is hoping for.

Financial advisors can work with you to take a big-picture look at your finances, explore all the outcomes available to you, and make the choices that will optimize your financial management over the long haul. It’s worth getting this assistance when making major money decisions like this one.

The post Should I pay off my $780k mortgage today with a net worth of $2.6M and a goal to retire in 10-15 years? appeared first on 24/7 Wall St..