Jaspreet Singh: Should You Pay Off Your Mortgage or Invest?

Jaspreet Singh / Jaspreet Singh

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A common debate in the personal finance community involves deciding whether to pay off your mortgage early or invest this money.

On one hand, paying down your debts can help you achieve financial freedom because you won’t have to worry about future debt payments. On the other hand, you can invest your money to have the power of compound interest on your side to get a greater return. As usual, there isn’t a clear-cut winner when it comes to money, so we will look at your options. 

Should you pay off your mortgage or invest? Here’s what financial expert Jaspreet Singh shared on investing vs. paying off an existing mortgage. 

The Role of Interest Rates 

Deciding between paying off your mortgage balance and investing will come down to interest rates. You must consider the rate you’re paying on your mortgage and the investment opportunities. 

Here are some examples that Singh shares: 

• You can take $100,000 and invest it into an FDIC-insured high-yield savings account, paying anywhere from 4% to 5%. 
• The historical average return on your money in the stock market hovers around 7%. 

If you put your money into the stock market to earn 7% and your mortgage rate is 7%, then you’re taking on unnecessary risk. However, if your mortgage rate is lower than that, say 5%, you can use accounts paying higher rates to get a better return. For example, if your mortgage rate is 3% and your high-yield savings account pays 5%, you can invest your money and use the proceeds to pay down your mortgage in the future. Regardless of your decision, you’ll have to start by looking at interest rates. 

What if you start paying off your mortgage? 

Here’s what to keep in mind when paying down your mortgage, according to Singh:

• Your interest is front-loaded, so for the first 14 years of a 30-year mortgage, most of your payments are toward interest.
• You have to ensure your additional payments are toward the principal instead of next month’s balance. Your goal should be to pay off your principal. 

What’s Your Risk Tolerance?

If you invest your money into the stock market, you assume risks since the market fluctuates. You’ve likely noticed the swings if you’ve been paying attention to the market in the last few years. You don’t want to put yourself in a compromising financial situation where you’re constantly stressing about the market.

As Singh mentioned, it’s an unnecessary risk to put your money in the market with the explication of trying to earn a 7% return when the interest on your mortgage is at this same level. You may want to focus on paying down your mortgage until you can negotiate a lower rate someday.

The Reality of Investing Your Money 

On top of your risk tolerance, you also have to look at your financial goals when it comes to investing your money. Here are a few key areas to think about: 

• If you want financial freedom, then you have to focus on paying down your debts. You can’t be financially free if you have debt payments to worry about.
• Singh notes that you can earn much more than 6% by investing in your own business. However, you’re going to have to deal with failures and risks. There are also no guarantees when it comes to investing in your business. 

Singh believes that everyone should be investing their money. There’s a lot of value in letting your money compound and grow. This also requires that you get your debt payments under control. 

How Much Is Your Mortgage Rate? 

It’s difficult to give a one-size-fits-all answer because every homeowner has a different interest rate locked in. This is why we’re going to explore a few common scenarios in this argument. 

What if you have a low mortgage rate?

If you locked in anything under 5%, you can likely benefit from investing your money instead of paying down your mortgage balance. 

What if you have a high mortgage rate? 

It generally makes sense to focus on paying down any high-interest debt. Luckily, you can always negotiate your mortgage rate in the future to bring it down when rates have lowered. 

What if mortgage rates fall?

If you’re waiting to make a decision because you believe that mortgage rates will fall, then have to be aware that this scenario could lead to more competition as buyers want to enter the market. When rates fall, you also won’t find high-interest savings accounts that are providing guaranteed returns. 

What To Know About Buying a Home

If you’re looking to enter the real estate market, Singh provides advice to help you make an informed financial decision:

• Singh doesn’t want you to chase a home because you could end up overspending or buying more home than you can afford. 
• Don’t treat your home like an asset because it’s a liability if you don’t profit from it. 
• You’re buying a home as a primary residence to make memories. You need to be able to afford the down payment, the monthly payment, and the move-in costs. 

He doesn’t want you living paycheck to paycheck because you purchased a bigger home than you could afford. You should have money to invest in other assets to build real wealth. 

Closing Thoughts

There’s no easy answer when deciding between paying off your mortgage and investing your money. You’ll want to factor in the interest rate that you’re paying on your mortgage while looking at your investment return options. You want to make the decision that makes the most financial sense to you.

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