Keep mortgage and Invest?

Here is a topic that I’ve talked to many people about and get very mixed opinions on what is the best choice. Should you keep your current mortgage and only pay the minimum payment, putting any extra money you have into investments? Or should you pay all extra money toward the principal of your mortgage and then invest heavily when the mortgage is paid off?

When talking about this at the office I get two different sides and various opinions on what to do with extra money, and there are many factors involved before you make this important decision. These include: What is the interest rate on your home loan? Where do you plan to invest the extra cash? How long do you plan to invest? What type of spender/saver are you? How long will you live in this home? And the list could go on and on…..

The obvious choice for someone who enjoys working with numbers would be if you can get a better return on the money than the interest rate on your mortgage then you should invest the money elsewhere and keep the mortgage. An added benefit of keeping the mortgage include the savings from the interest you pay each year on your taxes. For example: with the current mortgage rates on a 30 year fixed loan being less than 6% and the average return on most mutual funds over a 5 year period being greater than 10% then you should definitely invest the money elsewhere and also enjoy the benefit of the tax savings. Lets do a more specific example: You get a bonus check from work of $1,000 with the same interest rate (6%) and rate of return (10%) mentioned above. We are also going to assume a $200,000 mortgage. Paying the $1,000 extra down on the loan at the beginning of the term will pay off the loan about 4 months early and save you $4,933.61. Taking that same $1,000 and investing in a mutual fund with an average rate of return of 10% over 356 months will give you a total amount of $19,189.70. So would I rather save $5,000 or make $19,000??? It’s obvious but why does my heart tell me to pay off my loan early?

Maybe it’s because I don’t like to owe money, maybe it’s because listened to Dave Ramsey, maybe it’s just the though of freeing up $1,400 per month in the budget but for some reason my heart tells me to pay off the mortgage before investing tons of money into retirement. I guess for now I’m going to continue to contribute to my 401k up to the amount my employer matches, invest in my Roth IRA and pay a little extra over on the mortgage. Maybe in a couple of years I can talk myself into putting every extra dime into investments? Any thoughts???