Is it wise to pay off your mortgage with such low mortgage rates?


I often have conversations with clients about their needs, their wishes, their wants. Many clients discuss how they “want” to pay off their mortgage as soon as possible. For customers who are in their fifties or sixties, this makes sense. They would like their house to be paid for when they retire. However, for most of the others, there are other opportunities that make far too much sense than speeding up their mortgage repayment.
Think about this… you have $ 10,000, $ 20,000, or $ 50,000 sitting in a bank and you are earning almost zero percent. What are you doing with it? Or maybe you just inherited those same amounts. What do you do with the money? The stock market can be very risky. You may be able to use some of it to pay off your mortgage balance. Is this a wise decision? Not if your mortgage interest rate is 2-3%! There are lots and lots of investments that will net you much more than 2-3%. Why pay 2.5% when you can earn 7% or 8% on that money?
Take $ 50,000 for example. By paying off an interest rate of 2.5%, you save $ 1,250 per year in interest. However, investing that same $ 50,000 at 7% earns you $ 3,500 per year! So the best thing you can do is invest that $ 50,000 at 7%, and then if you want to take that $ 3,500 and pay off the $ 1,250 mortgage… pocketing an additional $ 2,250. OR… let it roll and keep earning 7% on your money while continuing to write off your mortgage interest (instead of paying off your loan, lowering your balance and having less interest write-off).
So… where do you find 7% investment? AH… that’s the question. I talk to a lot of my clients about investments in 1st trust deeds. Most have no idea of ​​these opportunities. So let me explain. There are lenders who lend to people who buy houses, repair them and sell them for a profit. These palms need capital to buy and repair the house, so these hard money lenders provide them with that capital for a very healthy return. Then the lender asks the investors (you and me) to invest in this first trust deed (we provide this capital and earn interest on this investment). 6, 7 or 8% is very achievable for me as an investor. Remember, this is a first trust deed (not a second or third) and most of these types of lenders are VERY, VERY CONSERVATIVE about who they lend and how much they lend (they like to keep the loan value low … so the risk is VERY, VERY LOW. If you have any interest or questions about this type of investment, please call me to discuss it further. I am always looking for ways to help my clients! You can reach me at 661-705-2500 or email me at [email protected]


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