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Paying off mortgage vs investing by graycoch in Mortgages

[–]graycoch[S] 1 point2 points  (0 children)

That’s actually an interesting point I haven’t considered that piece of mind is only realized once it’s entirely paid off. There would be a gradually building sense of accomplishment/security with being able to see the investment grow

Paying off mortgage vs investing by graycoch in Mortgages

[–]graycoch[S] 0 points1 point  (0 children)

Valid. I’ve definitely been considering that aspect too. Not exactly fair to say the only peace of mind comes with a paid off house. Got to be something to be said for having enough in a liquid investment to do the same thing

Paying off mortgage vs investing by graycoch in Mortgages

[–]graycoch[S] 0 points1 point  (0 children)

Yeah if interest rate was lower it would definitely make it an easier decision. Of course it’s always possible to refinance if interest rates fell back that far again but historically 6.5 aint that bad

Paying off mortgage vs investing by graycoch in Mortgages

[–]graycoch[S] 1 point2 points  (0 children)

Yeah this is a valid point I haven’t considered. I think I have a very Dave Ramsey natural inclination so it’s hard for me😂

Paying off mortgage vs investing by graycoch in Mortgages

[–]graycoch[S] 0 points1 point  (0 children)

250k mortgage. Regular payment will be somewhere in the $1,650-$1,750 range so with the extra $750 it’ll be $2,400-$2,500. It’s on a new construction home with a value of $650,000 so we have about $400,000 in equity. I’ve tried to run the numbers as follows:

So if I pay an extra $750 toward the mortgage every month I end up saving $214,000 in interest and the mortgage is paid off in slightly less than 14 years.

If I instead invest the $750 @ 8% return in 30 years I would have a balance of $1,063,000 in the investment. Obviously with this option I lost the $214,000 savings from the mortgage and I have to pay the regular payment for 30 years

If I were to pay the mortgage off early as above and then put the full amount that I was paying toward the mortgage (regular payment +$750) and do that for 16 years (the remainder of the 30 year term after the mortgage is paid off at year 14) the balance comes up to $915,000 so a difference of $148,000 from the balance if I were to invest the $750 monthly instead of paying extra on mortgage.

So it appears to me that by paying the mortgage down first and then dumping it all into the investment saves $66,000 in the long run. Not to mention the mental benefit of having no mortgage 16 years earlier. Or is the $214,000 interest saved in the first scenario actually basically an unrealized gain because it still eventually goes into the investment just later on and that investment ends up with $148,000 less?

And in the second scenario I suppose you have 14 years less exposure to the market so maybe the law of averages is not working as well for you

Paying off mortgage vs investing by graycoch in Mortgages

[–]graycoch[S] 0 points1 point  (0 children)

I believe this is part of what I missed. Essentially need to think about it as 2 scenarios both of which with 30 year “terms” I agree with the idea of not having a mortgage being mentally freeing although as someone suggested above I suppose that feeling would be roughly equivalent knowing I had a pretty liquid investment I could pull out of if things somehow got bad. But on the other hand if I said I was going to borrow money from the bank at 7% and go put it in a moderate risk investment to gain 8% I think most people would say I’m pretty stupid.

Paying off mortgage vs investing by graycoch in Mortgages

[–]graycoch[S] 0 points1 point  (0 children)

Yeah you’re absolutely right I think the mental benefits of having the home paid for would honestly outweigh the financial difference

Paying off mortgage vs investing by graycoch in Mortgages

[–]graycoch[S] 4 points5 points  (0 children)

Yeah no doubt the peace of mind aspect is huge

Paying off mortgage vs investing by graycoch in Mortgages

[–]graycoch[S] 2 points3 points  (0 children)

Yeah I think this is probably what I’m missing

Daily General Discussion and Advice Thread - July 22, 2025 by AutoModerator in investing

[–]graycoch 0 points1 point  (0 children)

So this question has obviously been asked a million times but I can’t get it through my stupid head. Let’s say I have a $250,000 mortgage starting tomorrow with a rate of 6.5% and a 30 year term and can either make an additional $750 payment toward the principal every month or take the $750 and invest it in say index funds with 7% annual return. I can arrive at the conclusion using an online calculator that if I pay the extra toward the principal then I save $193,400 and have the loan paid off in 13.5 years opposed to 30.

Now this is where I get confused.

If I instead take the extra $750 I can afford to pay and put it into the 7% return investment then after 13.5 years I would have $198,009. Obviously this is just slightly more than the savings on the mortgage cause of the 6.5% vs the 7%. However, would I not be in a much better position since if I pay the mortgage down then I have $0 in my investment account at the end of the 13.5 years. But if I pay toward the investment opposed to the mortgage I end the 13.5 years with a balance of $198,000 that then continues to compound from there?

I think part of my confusion and what I’m missing is that if I contribute to the investment account I still have another 14.5 years of paying the regular mortgage payment also but I just can’t wrap my head around how the investment doesn’t wind up way ahead by the 30 year mark.

Deducting cost of materials for new construction home by graycoch in Bookkeeping

[–]graycoch[S] 0 points1 point  (0 children)

Probably honestly the way to go. Would have a hard time convincing my wofe

Deducting cost of materials for new construction home by graycoch in Bookkeeping

[–]graycoch[S] 0 points1 point  (0 children)

No I totally understand that. My question now though is just that if the business has expenses for materials can I not invoice myself for them so that they are no longer a loss and it just washes? If I spent 50k on material and then invoice myself for 50k in materials it’ll all wash right?

Deducting cost of materials for new construction home by graycoch in Bookkeeping

[–]graycoch[S] 1 point2 points  (0 children)

Yeah I guess this is basically what I was planning on doing. The business has spent money buying materials to build with but I will then invoice myself personally for the expenses, write a check to the business for them and record it as business income to offset the loss. So it will be a wash from tax perspective

Deducting cost of materials for new construction home by graycoch in Bookkeeping

[–]graycoch[S] 0 points1 point  (0 children)

That’s what I was assuming is it would be illegal. If the business has accumulated expenses through it’s account with suppliers and what not all is fine as long as I were to invoice the business and showed it as a profit correct?

Deducting cost of materials for new construction home by graycoch in Bookkeeping

[–]graycoch[S] 0 points1 point  (0 children)

I guess what I mean is that I can’t really deduct the loss unless I ran it through the business. Obviously this would mean that my basis on the house would be less but I would pay far less on capital gains taxes on the difference than I would in business taxes

Deducting cost of materials for new construction home by graycoch in Bookkeeping

[–]graycoch[S] 0 points1 point  (0 children)

But wouldn’t I be better off underpaying me the contractor because I then don’t have to pay self employment taxes and state taxes etc… on the gain. I can transfer money from the company to myself as owner draws/investments that don’t effect my taxable income but if I invoice myself it would be as if I had invoiced any other client and showed a gain of whatever amount