There are some important factors to keep in mind about this study. This analysis relied on hypothetical market performance and interest rates and assumed the savings were available in cash. This is another reason it makes sense to create a holistic financial plan that covers many aspects of your financial life." "More conservative investors, in general, might have been better off prepaying the debt. "The results show that, in general, more aggressive investors might have been better off continuing to invest," says Mike Rusinak, a director of Fidelity's Financial Solutions group. Was the balance higher at the end of the plan? The study looked at 3 different measures:ĭid prepaying a loan decrease the risk of running out of money in retirement compared to investing?ĭid prepaying decrease the volatility of the portfolio? 1įidelity recently completed an analysis that looked at different mortgage interest rates and hypothetical market performance for a number of different portfolios to see the financial impact of prepaying a mortgage. But if you were to earn an investment return that outpaces your interest rate, paying off the loan may not make sense. 1īut that raises the question, what if the returns from your investment portfolio are different than your loan's interest rate? If you have a higher interest rate than your investment returns, prepaying your mortgage might benefit you long term.
If you pay the loan off, you save that $500-that savings is sort of like a "return," and has a similar effect on your net worth. Meaning, if you owe $5,000 on a mortgage and pay it down over 3 years at 5% interest, you are going to pay about $500 in interest. Paying off your mortgage is a little bit like investing at a fixed rate of return. How do you know if paying off a mortgage can help you financially?Ī key factor is to consider what the money would do if you didn't pay off the loan. When it comes to dollars and cents, the decision can be complicated: Paying off a mortgage early will help some people financially, and make less sense for others. You should also weigh the financial aspects of the decision. In fact, for some people, paying off the mortgage may seem like a requirement before retirement.īut when it comes to paying off a mortgage early, feelings are just one factor to consider.
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