Invest Or Pay Off Mortgage?

Added June 5, 2006 by Ilyce R. Glink

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Summary: If you have the extra money, is it better to invest it or pay off your mortgage? The decision depends on where the money will go if you want to invest it.

Q: If I have the cash to pay off my existing mortgage (it's at 5.75 percent) and still have money in the bank, would it be smart to do so and then let the house payment become a monthly contribution back into savings/investments while living debt free?

A: It sounds like you have a smart financial plan, but whether you do it should depend on what you're going to do with the money if you don't pay off your mortgage. If you'll invest it in a way that it returns more than 8 percent annually to you, then keep the mortgage and invest the cash. But if you're just going to leave it in a bank account earning 2 percent, then pay off your mortgage.

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