Should you pay off a loan or invest?

Some time back, in the BoldIn Facebook Group, Linda asked about what to do with a recent inheritance. He asked if he should pay off the loan or invest.

He wrote: “I’m 77 years old and had a mortgage with $150,000 left on it. I inherited enough money to pay it off.”

It’s a good question. Making the best financial decisions can be like playing a game of chess. There are long-term and short-term consequences to every movement. And, while the best option is to model what’s right for you using the Boldlin Retirement Planner, here are some thoughts on different strategies from Boldlin subscribers:

Debt allows to pay off the loan

Peace of mind

The most popular responses – by far – were those that argued that the peace of mind that comes with being discriminating about money is more important than the ability to acquire wealth.

Here are some of those arguments:

Mike wrote, “I was in a similar situation and decided to pay off the loan. While the ‘statistics’ may suggest that it is better to invest, there is a huge relief in being debt free.”

Rosemary delights in the combination of goods: “I have no loan, and love without debt.”

“I’ve been a liar by keeping the house, and saying I’m paying it,” said Cynthia.

Cheryl says, “Peace of mind has the greatest value. Pay off the loan and thank yourself from your roof.”

Greg writes, “You can’t put a price on ‘peace of mind.’ You paid it. “

In fact, said Ted, “The grass feels soft, and the view from the deck is great when the house is covered.”

Stock Market Returns are not guaranteed

“There is no guarantee that the market will go up,” wrote Peter.

A philosophised reed, “Mathematically, they should invest. But, psychologically, you might want to pay the mortgage.” He continued, “For me, I paid the money I borrowed because I ‘Feel ’cause the market is close to a peak. The feeling of not being burdened with collateral is very important to me. “

Explosion is not a fan of risk. “I agree that doing it in the market is probably too risky unless you are sure what you can stand for 5 years of market correction.”

The bill turns the question upside down to argue for paying off the mortgage. Prune, “If your home is already paid off, would you take out a second loan (home equity loan) of $150k to invest in the market? No way.”

Jim writes, “Paying the effects of collateral on a ‘risky’ return”

Ronald advises, “Always get the sure thing vs the odds of getting a better return.”

Improved cash flow

Jeff argues that when you pay off a loan, “You will get the mortgage payment back from the cash flow.” You suggest that you “Just remember to find a way to spend more money.”

Julie agrees, “Investing in it is gambling. Owning your house is a sure thing. At 77, I was paying if I didn’t have hundreds and now I have more money to enjoy and/or invest.”

Brokers and other advisors want you to keep money invested for the wrong reason

While you may do better financially by investing rather than paying off a loan, many people have indicated that financial advisors are interested in investing your money. When you use an advisor, they make money when you invest. They don’t make money if you pay the mortgage.

Peter says, “Paying off the house solves the stress of wondering if your financial advisor (who might be making 1% or more on the money you’re ordering;”

Affirmative action is allowed to invest

Accumulation of wealth

Advisor motivation aside, if you pay 4% interest on your mortgage and you can get an 8% return on the investment, investing increases your wealth by 4% more than paying the mortgage. The math is simple, and most people make that point.

Jill argued that the investment would get more than the financial cost, “I would pretty much bet that the long-term return on the market will exceed 4.35%. Almost any good investment will exceed your mortgage rate.”

Sandra, 56, can relate. Instead, he chose to invest. “I cheated and invested money but I’m only 56.” What does age have to do with it? At 56, Sandra likely has many years to come for the fund to grow and recover from any market volatility.

“History says the return will be better than the interest on the mortgaged property,” said Vicki.

Dean did well with the investment. Prune, “I’m 66. It’s not breaking even, but it’s gotten 22% in S&P funds and 2.75%. I’ve made a lot of money investing.”

Flexibility

John wrote, “Paying off the loan makes the money unavailable (unless you sell or get a new or refinanced loan). Think about your rate of return.”

Kathryn is more specific. He says, “How much money do you have in retirement accounts? If it’s less than NO, I’d save the money.”

Doug wants to keep options open. Prune, “I might have $150k in the bank.”

Doing more than you should

If inflation remains high, there is good reason to keep debt. Derrick explains, “In an inflationary market, those with low-interest loans may see their loans increase in interest if the rate of inflation is higher than the average interest rate.”

Donald agrees, “Inflation at 5% works by allowing it to be understated.”

Other currency options

Spend in Happiness

Stacy had the most popular answer, “I’m a nurse, so maybe my perspective is different. I see people at the end of their lives, and you do what you do when you have to do it to be happy? A horse? Art class?“

Ron agrees, “Spend money in a way that makes you happy. At 77, it’s all about the best days you can combine with your happiness…”

Virginia advises, “Go and have fun. Life is short.”

Split the difference

Mark suggests a compromise, “What about separation?

Make a decision based on your long-term care goals

Several people noted Linda’s age and suggested that she consider making a decision in light of her long-term caregiving goal. He can invest and use the principal and return to the care of the fund if he needs to. Or, he could pay off the loan and get a mortgage or sell the home to take care of the money.

Larry writes, “70% of Americans will need some kind of help before they die. And, it’s very expensive.

Make a decision based on your goals

Jeffrey thought that this decision should be based on personal goals and suggested a good framework for making the decision itself: “If you’re 1) comfortable with your current cash flow lifestyle, 2) If you’re financially motivated, since you’re happy with money, you can enjoy being broke.

Rebecca had another list of questions to ask: “Do you need to make more money or are you doing well as it is? If your home is paid off it will give you some breathing room with your move and so you have to think what is best?

And, Pat suggests, “There are good reasons for the choice. The best travel is the one that makes you the most comfortable.”

Make a decision based on real understanding

As Dan says, “This is a question that cannot be answered without knowing your full retirement planning details.”

Once you understand your goals, you can evaluate the financial aspect of the decision by using the Boldlin Retirement Planner. Run instances of:

• Paying Debt
• Immersion
• How to spend
• Investing money

This process will help you:

1. Assess the financial implications of your options
2. Think about how you would feel in different situations

There are no right answers, only what is right for you.

About Boldlin

For people who want clarity about their decisions today and their financial security tomorrow, Boldn is a financial planning platform that empowers people to find, design, and manage personalized options for a secure future.

Our goal is to make a high-quality, cost-effective financial guide available to everyone. More than 155,000 people representing more than $168 billion in wealth currently trust the program to make the most of their money. The platform may be branded or White Listed for partners. In addition, the company provides API access to companies that wish to leverage the programming functionality within their site.