Pay Off Mortgage Early or Invest? #AskTheMoneyGuy

hey money got family it's your host Brian presto mr. beau handsome and once again we're here for the hashtag ask the money guy series as you know we do financial topics that go all over the place and do deep dives but we want to do a little bit more if you have any questions out there you can go onto your favorite social platform hit hashtag ask the money guy and we're gonna answer your questions it's Brian Preston the Buddy Guy so Brian today's question is when we actually get a ton and this is Jews the way it goes you know someone will have been on fire for paying off debt early on yeah and they'll find themselves in a position where they say well I don't have any debt now but I'm in my mid-40s and I don't have any assets built up or we see that another way someone might say with interest rates so low how do I ever justify paying off my debt early we actually had a great youtube comment that i think sets us up real well so I'm I'm just gonna read this word for what would be great it says help please we have a house and plan on paying it off in five years there's no other debt but we have no retirement fund my husband isn't worried about it I am he has wealthy parents and land in the north Canada but I want I want money I can hold not hope for we're in our 40s the house is worth between eight hundred thousand and nine hundred fifty thousand dollars and I was wondering can I simply count on the house to act as our retirement fund thanks this is the first time I've seen your show it's awesome four exclamation marks think that's important to mention there's two big things that are going on here and what I think is interesting bow is that I had two of the same questions probably within two hours right where I had another person I was talking to it watched our Tesla series and they were trying to figure out if they could afford the Tesla but they had we're almost debt-free completely including their mortgage but they closed an email saying I wonder if I got this backwards and and this is why I want to talk about this is that I don't see a lot of people talking about in the financial press that the two things you gotta unpack is is that can you have too much of a good thing was paying off your debt too fast meaning there's an opportunity cost that you had the debt paid off instead of letting that money work for you and then the second thing is you can go the their side of the coin where people are worried about why would I ever pay off the debt because interest rates are so low so I want to kind of go into each one of those this so how can there be some opportunity cost because if you're paying off debt that's good you're decreasing your liability base what's an opportunity cost or a missed opportunity that exists there well the big thing is and we have talked about this I need you if you have not covered it or looked at it go check out our YouTube series we did on financial mistakes by a.m. and in that I detail a full calculation I'm not going to go into the calculation but at least tell you the results we discovered that the power of a dollar bill one dollar if you start saving when you're twenty years of age by the time you're retiring at sixty-five can be worth eighty eight dollars for a person who's thirty years of age that one dollar can be worth twenty three dollars for a person who's 40 it's seven and for somebody who's 50 it drops down right below three dollars so you can quickly see that those people who are saving early right often when they're in their 20s it is a dynamic growth multiplier on your assets that power of compounding interest so my fear is is that somebody who gets so excited about getting out of debt I have no problem with you paying off your credit cards pay off those high interest car loans but you get to a point that now you have to decide do I pay off my mortgage or do I start saving for the future and get that free money from my employer so I'm going to tell you if you're in your 20s and 30s why you have a multiplier that's double digit you need to be investing that money don't do too don't do too much of a good thing by trying to get completely out of debt because I worry about then you will be in your 40s just like are the listener on YouTube right and you have a house that's almost paid for but you have no retirement that's that's too much of a good thing on paying off debt because when when you let that army of dollar bills work for you and have it out then the background working it can be multiplying by like you said eighty eight times if you're in your 20s or twenty three times if you're if you're in your 30s when you pay that mortgage off when you pay off the inch all you're essentially doing there is just locking down that interest rate savings yeah exactly Aang you furloughed your army of dollar bills you hear us talking about army of dollars elves all Tom one of the things I get fearful of is somebody who pays off their debt too early when you have that huge multiplier fact is that you're essentially every dollar that you prepay on the on the mortgage you're that that army is going into your house and they'll look at each other going what are we doing here I could be out there working I could be bringing more money back to the army that's right but we're stuck here we're all furloughed hanging out wondering why we're not growing and that's and here's the other thing that Chris brought up and or even I actually want to hold the money what she means by I want to hold the money she won't split quit it houses are use asset and when she asked the question can you retire went off of your house assets only if you sell the house if you actually love where you live and you love your house you can't get out most grocery stores won't let you buy groceries based on the value your house on the street and so okay so you've you hit on the opportunity cost but you said or let me ask you this question is there a time when it does make sense or should you ever prepay your mortgage especially in light of the interest rate environment we've been in for the past couple years everybody gets excited cuz we've been in historic low interest rates and everybody goes well why would you and there are financial advisors and others that I have a lot of respect for so you should never pay off your mortgage I disagree with that and here's why I think as you get to retirement when you actually want to cross that threshold of being financially independent financially dependent means you have no obligations to anyone and that obligations extends out to debt that's what debt is so I think somebody who's in their 50s their 60s there's nothing wrong with being debt-free at that point because the emotional benefit can outweigh the analytics of the calculation plus don't forget on that calculation we did previously by the time you're in your 50s it's less than a three time multiply right so the opportunity cost of what you're missing out for is less and less so if you think about if you pay off your house completely when you're in your mid 50s or in your 60s your opportunity cost is not that bad so let's let the emotional benefit as well as the true financial independence kind of way that the scale of your decision-making at that point versus trying to you know always have your money working and having that risk of what's going on out there and in the world of finance so if I'm hearing you correctly it's not just because interface are so low right now that obviously helps the equation but even if we see interest rates rise and even would get back to where mortgages might even be you know six or seven percent at some point even then you kind of have to wait all the different variables to determine if it makes sense to prepay or to let the army dollar bills go work for you oh for sure when interest rates are going to be higher it's going to be a much easier decision to pay off the debt but I'd still encourage you even if interest rates get back up to five or six percent on mortgages you've still got to take into account that growth factor because remember a person who's twenty years of age buying into something like the S&P 500 there could be potential for double-digit returns you need to take into account that spread of letting your money work for you with compounding interest perfect so guys here's the thing you can sense this stuff can get complex it's nuanced there's a lot of things going on so if you feel like you get to a point where you don't feel comfortable making these huge decisions all by yourself think about taking the relationship to the next level a lot of you probably wonder well these guys just gave us completely free advice what's the catch there is no catch this is our gift to you all we asked if you ever want to repay us is when you get to the point just like Chris might be where she's trying to make a financial decision because she's got big things counting on this consider taking the relationship to the next level we work with clients all across the country and don't forget hashtag ask the money guy we'll talk to you soon I'm your host Brian Preston mr. bohannon

Channel: The Money Guy Show

Views: 72,967

Keywords: Pay Off Mortgage Early or Invest?, #AskTheMoneyGuy, how to pay off my mortgage?, mortgage, debt, money, show, pay off mortgage early, dave ramsey, how to pay off your mortgage, how to pay off your mortgage early, pay off mortgage, how to pay off your mortgage faster, investing, invest, how to invest, the money guy show, personal finance, real estate, paying off mortgage early, financial freedom, how to pay off debt, pay off your mortgage, debt payoff, mortgage loan, home loan

Id: 8XfAbPLuoOA

Length: 8min 21sec (501 seconds)

Published: Wed Sep 05 2018