Pay Off the Mortgage or Invest?

Eccentric Cute Aunt and I hate being in debt.  I’ve always hated asking for a loan, even just borrowing a buck or two from someone.  And anytime I’ve had a loan in my life, I’ve tried to pay it back IMMEDIATELY.  In college, I was forced to take a few Stafford student loans which I started to pay back well before graduating, and was fortunate enough to end college with around $8,000 in loans which we promptly paid back before the grace period ended (whew! No interest!).  And although I have never found it difficult to save up enough money to buy anything that I need, including cars (I’ve never had a car loan and I’ve always owned, never leased), saving up enough money to buy a house with cash was not something that seemed reasonable.  So, we got a mortgage…

We bought our home in October 2013, with a down-payment of around $80,000 which we had saved the prior year and a half after graduating.  We were debt-free at the time, and then suddenly, $225,000 in the hole.  Of course, we owned the house too, but if you’re like us, that somehow feels like a small consolation (I know it’s irrational).  So, with our obsession to be debt-free, we started to pay down the loan.  Today, the balance sits at just under $48,000 and we are extremely far ahead of our 15 year timeline.  If we don’t make any additional payments, the mortgage will be fully repaid in April, 2019, 9 ½ years before the original December, 2028 timeline for our 15 year mortgage.  And knowing us, we will almost definitely be putting in more, so it will likely be paid off within the next year!

All this is great, but was it the right choice?  Is continuing to pay down the mortgage the way to go, or would I be better off investing that money?  I looked at how much and when we put in extra towards the mortgage and compared it to the amount we would have made by investing this money into the S&P 500 with reinvested dividends.

Here is what we actually did (approximately) for the past year: 1

And here is the theoretical alternative would have been for the past year:2

5

I used this calculator to determine the gains on the S&P 500 for each month.

From the theoretical version, if we were to take the total value of the portfolio and use it to pay down the loan at the end, we would end with a loan amount of $55,893.  Compared to the actual value of $57, 611.  Therefore, we would be about $1,700 better off investing just over the past year.

The discrepancy gets a little bigger when I look at the entire life of the loan.  When I go further back and do my “what-if” scenario, I found that we would be around $6,000 better off if we would have been investing the extra money instead of paying down the mortgage.

So in the end, we could have been a little richer by investing, but we have earned a greater peace-of-mind going the safe route and getting that mortgage off our backs.  I’m not sure which is the best choice.  What would you do?

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