ACCOUNTANT EXPLAINS Should You Pay Off Your Mortgage Early or Invest for Retirement

If you are a homeowner and have some extra cash set aside - you probably asked yourself: is it better to make an extra payment towards your mortgage or invest that money towards your retirement?

In this video, we are going to go over whether you are better off making an extra payment towards your mortgage or contributing to your retirement fund. We will also cover how much money you need to retire, taking into consideration your home costs.

00:00 Intro
01:00 Pay off Mortgage vs. Invest in Retirement Calculation
09:04 How Much Money Needed to Retire Calculation
13:07 How Assumptions Affect Your Decision
14:56 Takeaways & Pros and Cons

Disclaimer: Note this video is not financial nor accounting/tax advice and should be used for entertainment purposes only. Consult with your own financial advisor, accountant and/or tax advisor for advice related to your specific situation.
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Gabrielle is a CPA and Tax Expert, as well as the founder of Balance + Wealth CPA, a licensed CPA firm that specializes in Tax. Prior to starting her business, Gabrielle worked as a Tax Manager at one of the Big 4 Accounting Firms for 7+ years, advising Fortune 500 companies. Gabrielle posts weekly videos on personal finance, business finance, and tax tips.
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[azteca]

I got my house when I was single. I managed to save 3 months of emergency fund. 2 yrs after I moved in, I was diagnosed with Cancer. The following year after. New management came in I lost my job. As I was going back to the hospital and Dr's to check for any remaining cancer cells. I used that emergency fund to pay for my monthly expenses. After I was cleared to go back to work. I decided to up my monthly expenses, just in case. After I got married my husband and I paid off the mortgage, pay for our funeral expenses. We are now putting more into our investments/saving. I've been told I could of used that money to invest. But nothing gives me peace of mind, having the mortgage paid off, and not burdening my family with my funeral expenses and arrangements.

[AsianVideoGamer]

If you're less than 40 then contribute to retirement investment. If you're 40-60 then 50/50. Once You're 60 then pay of your mortgage or sell that house and downsize. Live off dividend plus pension rest of your life while doing work you want to do regardless of pay. Any age above 45 you're vulnerable to ageism from companies and laidoffs can literally kill you if you don't have cash and house poor

[motive]

One thing that you need to consider for some people, when I paid of my house early to offset the interest rate deduction I added that to my 401 k which is tax deductible. It’s not a complete offset since I’ll pay taxes in retirement but it made losing that tax deduction more manageable. In the USA we can contribute up to 20k a year which I increased once I payed the house off

[TheFirstRealChewy]

If your decision is based only on math, invest the money if it gives a higher rate of return than your mortgage interest rate. Factor in PMI if you are paying that. However, for most people it won't be based only on math.

Experience has tought me that things don't always go as planned and plans change. If you were forced into retirement today, would you rather have more money invested or a paid off house? The answer is that you don't want to have to make a choice.

[papa]

this was such an amazing and well done video/breakdown. thank you so much for all your efforts!

[rawjor]

Max and Contribute to TFSA yearly. Use the money in TFSA to buy S&P500, wait and win. (take advantage of new FHSA if looking to buy your first home). Open these two accounts before RRSP.

Advantage of stocks: no maintenance/repairs, highly liquid, tax free, beats housing appreciation. Set it and forget it.

This is coming from a owner of two rental properties but also have stocks. My investment would have been similar but the amount of work and headache to maintain rental properties is significantly higher than compared to stocks.

[catalinaleungszeto]

And also if 20k goes to rrsp account ( assume there is rrsp room ), AND REINVEST the tax refund, OR USING the tax refund to pay lump sum towards the mortgage, the benefit outcome should be even bigger …

[bexprefersgin]

This was SO helpful - thank you so much for this well produced and thoughtful video. It has really helped my family make an important decision about what to do.

[MDog_FPV]

Could you do an example on Investing AND Paying off Early
Save and invest the amount you would pay extra every month (instead of paying down, invest every month @ perhaps 8% return?), once it is large enough pay off the mortgage in one lump sum (Maybe showing how it grows over 15-20 years). Now that the Mortgage is paid off, you have the entire amount of mortgage and what you were paying down to invest every month. (Compare this method to regular mortgage and a typical pay off early you have described.

[Knowledgeabletuber]

I paid my house off, the property value is 225k.Then bought a second home for 355k and renting out my first home to put the extra on my second home to pay off quickly. Pay off will take me 3 years

[KS-jgbx]

If you can pay off your mortgage in 5 years, then do it as fast as possible. Whatever she is saying is based on an "Extra payment to your mortgqge. Not paying off 20% per year.

[shiyanjin]

Thanks for making the content. However, I'm not sure if I agree with the net positive benefit of prepaying in the example. In theory, as long as the annualized investment return is higher than annualized mortgage rate during the rest of mortgage, it's better off investing instead of paying off mortgage. In reality, one of the considerations for the investment at mortgage renewal is where the market in which the fund will be invested is heading, i.e. you wouldn't want to invest if the market is significantly overpriced.

[dancedricarevalo]

Not all heroes wear capes. Some are in YouTube. Thanks you and I appreciate your efforts!

[mkhatame]

You are smart and an intelligent woman, but I think you should make your videos more concise. Thank you for your work and wisdom

[catalinaleungszeto]

Excellent and detailed explanation… ( even a lot of numbers, I guess people need a clear mind before listen to this video)) lol

[touxiong]

Payoff because investing is not guarantee profit.

[vincentchuvc]

I like to do both sequentially using the smith manoeuvre. No new capital is required and I can capitalize the interest too

[nikkitea]

With the direction the future is going and how things are right now, investing your money into your retirement is probably the better option. The time to buy a home is no longer an option for many people I know in their 20s and 30s.

[cents]

Paying off mortgage earlier would buy yourself peace of mind to take better job which could easily generate more cash flow than investment for most of people. Return of investment is not guaranteed!

[desertwind]

Doesn’t paying off house have a compounding effect too? The amount you pay extra not only reduces the interest but means future repayments go less to interest and more to house?

Did this also account for investing immediately after paying off house against the fact investor would need to keep paying for house.