Paying Down Your Mortgage: A Wise Use of Excess Cash?

March 30, 2023

Should you prioritize investing or paying down your mortgage? In this highlight, Brian and Bo discuss how you should approach paying down your mortgage and investing towards your future.


Want to know what to do with your next dollar, you need this free download: the Financial Order of Operations. It’s our nine tried-and-true steps that will help you secure your financial future.


Jay’s question is up next. He says, “I’m maxing out my 401k, IRA, and HSA, and also contributing to a taxable brokerage and a 529. So should any excess funds go towards paying off my mortgage (it’s a 2.25 percent interest rate), or should he be investing more?” To give it some context, he’s turning 46 this year. So, fight, fight! No, just kidding, but I know you’re going to have some hot takes. I’ll give them the background, then I’ll be the old man that gives the philosophical stuff because I’m battling this personally. I don’t know. I was actually going to defer the kick into the second half, but okay, I’ll take it now. I’ll go ahead and receive.

So here’s the answer, Jay. I don’t know your income. You’re maxing out your 401K. You’re maxing out your IRA, that’s $6,500. You’re maxing out your HSA, and I’m going to assume you’re a family, let’s say $7,750. I’m going to guess that that’s going to put you in the 25% savings rate. I don’t know that for sure. You’re also saving into a taxable account. You’re also funding a 529. If you’re following the Financial Order of Operations, you want to hold it up for me real quick? Oh yeah, oh yeah. If you’re following the Financial Order of Operations, that suggests to me the fact that you’re doing 529s now, that you’re in step eight, prepaid future expenses. Our general stance is once you’ve done all the things that you’re supposed to be doing the way that you’re supposed to be doing it, at this stage of the game, you get to do with your money what you choose to do with your money, meaning you don’t have to think about optimization at 46 years old. If you have a desire to begin paying down your debt so that you can be debt-free, that is an option. Remember, at the end of the day, money is nothing more than a tool that allows us to accomplish the goals that we want to accomplish. So, if one of your goals is to be debt-free, then I think it’s probably okay if you pay it on the mortgage.

If your goal is to optimize, I would sincerely and seriously ask you to consider the fact that you have a mortgage that’s at 2.25 percent, which is super, super, super low. And save you retiring in the next five, seven, ten years, assuming you’re going to continue to work until you’re 55, 60, 65. You got a long-term time horizon. There’s a really good chance that the dollars that you deploy out in the open market, especially considering that right now the market’s down, it’s not been a fantastic investing year, could likely grow at a rate greater than 2.25 percent over the interim term. So, if you’re thinking about optimization, there seems like there’s a reasonable likelihood your dollars could do better out working for you in the market than they could satisfying your mortgage. When Brian and I’ve gone back and forth on this, and the time say your goal is to be debt-free by the time you’re 55, I would argue that you might be better able to satisfy that goal by taking advantage of the low-interest mortgage, putting your money to work for the next couple of years, and then at age 55, having the opportunity, ability to just stroke a check and knock out the mortgage.

So, Jay, I’m just going to give you the short answer and then give you the old man pontification because me and you are very similar in age and so forth. I think you can pay it off if you want. I mean, go ahead, let it rip, pay it off. You’re over 45 years old. I think you’ve probably shown that you’re doing definitely greater than 25 percent, so go ahead and do it. I’ll share, and this pains me to share because it does fall into Bo’s camp slightly, not as heavy as he is on it. I just did my net worth saving stuff, and I had a goal that I wanted to be completely mortgage-free by 50. You know, I’m sitting on the horizon of that goal coming up in the not too distant future, but here’s the problem I have. I have a 2.5% mortgage. I’m down to where I only owe $200,000 on the house. I have more than that in cash, but the problem is my cash is paying me.

Now, look, I know when you guys watch this a year from now, who knows where rates will be, but right now, paying significantly more than more. I don’t mind saying the number. I mean, hopefully, people realize we’re not always live. We are live right now, but right now, I’m getting paid a little over 4.3 percent. So, you can see I have a dilemma. Here’s what I’ve done. I’ve had to ask myself what’s the why. Bo and I bought this building back in 2021, and it required because I was running fat on cash at that time. We eat our own cooking. We are not hypocrites. I am more than putting 25 percent to work of my gross income, but anything above and beyond that, I was planning on. That’s why my mortgage is so low. I just decided, you know what? I’ll just let my cash fatten up and see if another building, another opportunity because we’re growing so well that I don’t know if we need to buy land. I don’t know if we need to be prepared for five years down the road that we need to do this. So, I’m just trying to figure out the why, and that’s what I would tell you, Jay, to figure out what your why is. Now, a lot of people, if you’re not having to navigate a big, you know, like we have a company now with getting close to 30 employees, I have to carry around the weight and the tail of that so we can cover payroll so we can have the decisions for buildings and other capital needs in the future. A lot of people, it’s just will help you psychologically to be debt-free because what? The opportunity cost between paying off the mortgage versus what you can make in the cash, the spread probably might be small enough that you go, you know what? I’ll just be happier. And there’s a lot of. I’ve already checked the box that I’m doing 25%. It’s just what’s the great situation versus is there to maximize even beyond the situation, and if there is, what’s the why? And if you can’t answer that, I mean, I can at least put some love on that.

If you want to know how powerful your dollar bills are, check out our Wealth Multiplier deliverable here.



Most Recent Episodes

What I Learned From Being BROKE!!! (And Why I Wouldn’t Change It)

No one disputes the fact that being broke isn’t great. We want to spread the word that no matter where you came from, you can build wealth. In this episode, Brian and Bo share personal stories about their journey to wealth and lessons they learned along the way....

Top 10 Mind-Blowing Money Stats (2023 Edition)

These 10 money stats will blow your mind! We’ll discuss the unbelievable amount of money Americans save, when most reach millionaire status, and how many Americans carry a credit card balance. Research and resources from this episode: Most Americans don't have enough...

Wealth Multiplier Revealed: The Magic of Compound Interest!

There’s a reason why Albert Einstein called compounding interest the eighth wonder of the world! Do you know exactly how it works and how much your dollars could turn into by retirement? The Money Guy Wealth Multiplier can show anyone just how powerful every dollar...

From $0 to Millionaire in 10 Years (Is it Possible?)

How can you become a millionaire in 10 years or less? We’ll discuss common ways we see millionaires build wealth quickly, including through real estate, entrepreneurship, and the stock market. Discover how real wealth is built and why building wealth quickly may not...

Financial Advisors React to INFURIATING Money Advice on TikTok!

Brian and Bo are BACK to react to some more TERRIBLE financial TikTok advice! Join us as we take a look at some of the worst financial advice on the platform and tell you what to actually focus on in your own financial life. Enjoy the Show? Sign up for the Financial...

Investing Showdown: Dollar Cost Averaging vs. Lump Sum!

It’s a debate as old as time: what’s better, dollar cost averaging or lump sum investing? In this episode, we’ll cover the nuances and pros and cons of both, including in-depth case studies comparing investors at different times. Research and resources from this...

Is Inflation Really Ruining Your Finances? (You Won’t Like the Answer)

Inflation has changed our daily living expenses dramatically over the last few years. While we can’t control all of our expenses, there are many things in your control that can help you become a Financial Mutant and build wealth better than your peers. Enjoy the Show?...

Are $1,000 Car Payments Becoming the New Norm?!

New data shows more Americans than ever have car payments over $1,000. Is this becoming the new normal? How much could having a car payment of $1,000 be costing you for retirement? For more information, check out our Car Buying Checklist!