Mortgage vs. Retirement Savings: Prioritizing Your Financial Strategy

Assessing mortgage interest rates versus investment returns is crucial for financial growth.

### Deciding Between Mortgage Repayment and Retirement Savings: A Financial Strategy
* 💡 When considering whether to pay off a mortgage or contribute to retirement savings, it’s essential to **conduct an opportunity cost assessment**, weighing the benefits of each option.
* 🏠 For example, if you have a mortgage with a **6% interest rate**, prepaying it can save you **6 cents for every dollar paid in interest**.
* 📈 However, if you are younger and can invest that same dollar to potentially **multiply it 25 to 30 times**, it may be more beneficial to invest rather than pay down the mortgage.
* 🔍 The decision should be based on your **age, financial situation, and expected returns in the market versus the mortgage interest rate**.
* 📉 Historically, mortgage rates have fluctuated, with recent rates **dropping below 6%**, indicating that it may not be necessary to prioritize mortgage repayment over investing.
* 💸 Individuals under 45 should focus on **wealth-building behaviors**, such as contributing to retirement accounts, rather than aggressively paying off **low-interest debt** like mortgages.
* 📊 As one ages, particularly post-45, the focus may shift to **maintaining wealth**, and paying down mortgages can become **more appealing**.
* 🔗 For personalized insights, using resources like the **wealth multiplier** on money.com can help illustrate the **long-term benefits of investing** versus repaying debt at different ages.

[Music] I've got another housing question from Twi Engles. It says, Thanks for the great content, guys. At what interest rate should I prioritize paying off my mortgage over contributing to my retirement savings? The tried-and-true classic question. Yes, this is a great one. So, when it comes to how we decide how to deploy our dollars, I think we always have to do an opportunity cost assessment, right? So, I can do option A, and the thing that I'll be giving up is option B, or I could do option B, and the thing that I'll be giving up is option A. Twinkles, what you have to do for yourself is assess, Okay, what are my options? If I have a mortgage, and let's say that it's 6%, right? I've got a mortgage, 6% interest. I know that if I go and I prepay that mortgage and I begin attacking it early, then I'm going to save 6 cents for every dollar I pay on it. I'll save 6 cents in interest.

that's kind of the mathematic that'll work there, but if I'm someone young and I'm, say, in my 20s or my 30s, and instead of taking that dollar to go satisfy that 6% interest, I invest it, and I go check out money.com resources, and I look at my wealth multiplier, and I see that every dollar that I put to work could turn over 25 times or 30 times, well, then I have to assess what's the best use of that dollar, satisfying and paying down that mortgage, or letting that dollar go out and work for me. So, you have to determine based on where you are in your financial journey, based on where you are with your age, and based on what your investment assumptions are for your equity risk premium, what can I earn out there in the marketplace versus what am I paying on the mortgage, and where should I deploy my best dollar. So, at what interest rate do we recommend prepaying a mortgage? Well, it very much depends on the person, more so than the

interest rate look. I'll just put it like this: Twi Engles is that say sounds like clown. Twi Engles the clown, but Twinkles. If I was thinking about this, the highest mortgage rates got up to was right under 8%, seven and seven and a half. Um, but then last week, because I think there's some indication that interest rates are going to start dropping in the near term, I got a big notification that mortgage rates went below 6% again. So with this understanding that housing is an appreciate, typically historically, most times that you're buying a house, if you stay in it long enough, it is an appreciating asset. I'm not willing ever to put this into the step three of high-interest debt, especially with what we've just faced now. Maybe if this, we were back in the 70s and 80s, early 80s, when you know you could see mortgage rates 12, 15%, we could talk about it, but I haven't

seen anything in our most recent history that makes me feel like that it goes from Step nine to step three on your mortgage. So I because you always also have the unique ability to refinance. That is something that is quite unique to mortgages, especially when interest rates continue to drop. And you can do take a little bit of a premium on the rate and actually have the bank pay your closing cost to mitigate the even the refinance cost. That's why I'm not willing to say that there is a rate anytime that we've seen, 'cause we haven't even gotten over 8% to where I would consider that high interest. Now how does it change though as you age and you go from like your make wealthy behaviors to your maintain wealthy behaviors? Like I mean look anybody who's under 45 years of age, you need to be thinking about get wealthy behaviors. And this is why it breaks my heart when I see you know 32 year olds that are forgoing their Roth IRAs and their

employer 401K match because they just got. They paid off their credit cards, and now they're just hog wild into paying off all debts because it felt so good to pay off that credit card debt. It's got to feel just as good to pay off that mortgage debt, and it's just not the same because we got to get you to the get wealthy stage, of course. Once you're post-45, I'm all about the stay wealthy of paying down mortgages, other things. And by the way, if you want to know the why on this, there's math behind it all. You have to do is go to money.com resources. I want you to play around with our wealth multiplier, and I think you'll quickly see for like a 20-year-old. I always talk about 88 times over for a 30-year-old. It's 23 times over for a 40-year-old. It's seven times over. Now you're quickly catching on by a 50-year-old, by the way. It's three times over, so you quickly see that's why the

45 is the sweet spot. It's because if you go from 7 to 3 on 40 to 50 years old, you quickly see that, yeah, this is the point where the opportunity cost of what you're doing is just not as big of an impact. So, maybe if we can, you know, take some risk off the table, pay off the mortgage, it's an okay thing. But I want you to not skip the step of actually building wealth.

What Interest Rate Makes Paying Off My Mortgage a Priority Over Retirement?

Bring confidence to your wealth building with simplified strategies from The Money Guy. Learn how to apply financial tactics that go beyond common sense and help you reach your money goals faster. Make your assets do the heavy lifting so you can quit worrying and start living a more fulfilled life.

Subscribe today to stay up to date with our latest episodes, livestreams, and highlight videos: https://www.youtube.com/c/MoneyGuyShow?sub_confirmation=1

Are you ready to go beyond common sense when it comes to your money? Check out all the free resources The Money Guy Show provides: https://moneyguy.com/resources/



The Money Guy Show

The decision to prioritize paying off a mortgage or contributing to retirement savings depends on the individual's financial situation and goals.

If the mortgage has a 6% interest rate, prepaying it can save 6 cents for every dollar paid.

However, for younger individuals, investing that dollar instead may yield a higher return, making it crucial to assess the best use of funds based on age, financial journey, and investment opportunities.

The Impact of Mortgage Rates on Home Buying

Mortgage rates recently dropped below 6% after peaking just under 8%.

Historically, buying a home is an appreciating asset, and the unique ability to refinance offers flexibility as interest rates change.

It's important for those under 45 to focus on wealth-building behaviors, such as investing in Roth IRAs, rather than forgoing them.

The Importance of Paying Off Debt and Building Wealth

Employers are now offering 401K matches, leading individuals to focus on paying off debts.

The satisfaction of paying off credit card debt is driving a strong push to eliminate mortgage debt as well.

The wealth multiplier concept shows the potential for significant financial growth at different ages, emphasizing the importance of early debt repayment and wealth building.

The Importance of Wealth Building by Age 45

Reaching age 45 is a crucial point for assessing opportunity costs and making financial decisions.

It's a good time to consider reducing risk, such as paying off a mortgage.

However, it's important not to overlook the significance of building wealth during this period.