Pay off mortgage early vs investing for retirement

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No one likes owing large amounts of money to a lender, especially if it spans 15 or 30 years like most mortgages. Paying the mortgage off early means one less big bill to worry about. Grow your equity. Paying down your mortgage faster means accumulating more equity in your home at a quicker rate.

This also means you could take another route and refinance your loan, which can lower your monthly mortgage payments. Any additional money you spend to pay off your mortgage faster is money that is no longer available for other investments. It could be your k , a rainy-day fund, a buying opportunity like a boat or car, or being able to take advantage of an investment in the stock that could produce a greater return.

Your money is inaccessible. In the event of an unexpected medical emergency or other critical financial situation, selling your property to get the funds you need will be a drawn-out process, and potentially for less than the house is worth if you are in desperate need. Missing out on tax breaks. Money that goes toward paying off your mortgage faster means less available to put into your tax-deferred retirement accounts.

You also risk missing out on tax deductions for mortgage interest if you itemize when you file your taxes. Pros and Cons to Investing Instead Most people cannot wait to shed their mortgage debt burden and own their home outright. But it is not always the best financial idea to devote a lot of money to paying off your mortgage quickly. This is especially true when mortgage rates remain historically low, and your monthly payments are very affordable already. Instead, it allows you the latitude to add to your nest egg through other investments.

Mortgage concept photograph Pros to Investing First Put your money to work sooner for faster returns. The main reason to invest your money instead of paying down your mortgage faster is the bigger return on investment. The average annual stock market returns have exceeded mortgage interest rates recently, offering an opportunity to benefit from the difference.

More cash available when you need it. Unlike a home that ties up your money, and only appreciates gradually in value, investing in more liquid financial assets means you can easily sell and access your money if you need to. If you have an employer-sponsored retirement account, and your job matches your contributions, then that is additional earnings over time from investing the extra money.

These contributions are also pre-tax. Meaning, you can invest larger amounts. Cons to Investing First The higher the reward, the higher the risk. Plus, it makes sense from a financial standpoint, Orman says. Yet "more than one in three homeowners 65 or older is still paying off a mortgage. Remember: You will owe ordinary income tax on every penny that comes out of those accounts. While there are some pros to prioritizing paying off your mortgage before retirement, there are also a few cons to consider.

One of the biggest cons "is not using the inflation-hedging ability offered by a fixed rate mortgage, where the bank assumes all of the risk," Deborah Nason reports for CNBC.