Finance experts often warn against paying down a low-interest mortgage early. The reasoning behind this advice is simple: you can often get a better r

The True Cost of PMI: Why you should pay down your low-interest mortgage

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2024-12-23 22:00:08

Finance experts often warn against paying down a low-interest mortgage early. The reasoning behind this advice is simple: you can often get a better return by investing your money than by using it to pay down a low-interest loan.

For example, the return on paying down a mortgage with a 3% interest rate is 3%. If savings accounts are paying 4% interest, you’ll get a 1% better return by keeping your money in a savings account than by making extra payments on your mortgage.

While 1% may not seem significant, the numbers become far more compelling when you consider other investments with higher expected returns. The S&P 500 index, for instance, has delivered an average annual return of around 10.26% since its 1957 inception through the end of 2023.[1]

When you compare a 3% mortgage interest rate to the market’s 10% average return, it seems obvious: invest your money rather than paying down your mortgage.