💵 Should I pay down my mortgage or invest a lump sum
Found yourself in possession of some extra cash? It might not be life changing, but it's not pocket change either. What's a homeowner to do?
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(Inspired by this post)
Ever wonder what to do with a chunk of cash? It's a great problem to have. A common dilemma is whether to pay down your mortgage or invest the money. One path offers a guaranteed return and peace of mind, while the other offers the potential for much higher growth. This calculator breaks down the purely financial side of the decision, comparing the net benefit of each choice over the life of your loan.
Numbers are only half the story. This isn't just a math problem; it's a personal finance decision. Here's the other stuff to think about:
Risk & Guarantee: Paying down your mortgage is a guaranteed, risk-free return equal to your interest rate. Investing in the market carries risk, and the returns are an estimate, not a guarantee.
Liquidity: Money in an investment account is liquid; you can access it for emergencies. Money paid into your mortgage becomes illiquid home equity. Getting it out requires selling or refinancing.
Peace of Mind: Don't underestimate the psychological value of being debt-free sooner. For many, this is worth more than any potential extra financial gain.
Before you do anything, run through this checklist. These are almost always better uses for a lump sum:
- Emergency Fund: Do you have 3-6 months of living expenses saved? If not, this is your top priority.
- High-Interest Debt: Got credit card debt or personal loans with an interest rate higher than your mortgage? Pay that off first. It's a guaranteed high return.
- Retirement Match: Are you contributing enough to your 401(k) to get the full employer match? That's free money. Don't leave it on the table.
For more details on the concepts used here, check out these sources:
⚖️ Results
Net Financial Benefit (Paydown)
New Mortgage Payoff Term (Years)
18
Net Financial Benefit (Invest)
Breakeven Investment Return
Bottom Line
Invest 📈
Last updated by mahmoud
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Disclaimer: This content and any calculations provided are for informational purposes only. The views, calculations, and methodologies expressed are those of the author and do not necessarily reflect those of this platform. Not financial advice. Users are solely responsible for any decisions made based on this information.
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