Paying off Your Mortgage Early- What Would You Do With The Spare Cash

Not having to pay rent or a mortgage is one of the key steps to financial freedom. It frees up what is most likely your biggest expense and allows you to channel that money to other wealth building pursuits.  I currently pay about $3500 a month in rent (including taxes), and have a long way to go before I come close to paying off my mortgage. But when I do, and I always try and make extra payments to pay off my home loan sooner, here are four things I could do with the money:

 1. Invest it. This would be the most logical and wealth building move. Even if I were to put the freed up funds in a high interest savings account, paying 3% to 4%, I would get a risk free return of about $2000 a year. Still with inflation around 4% to 5%, I would end up losing money in real terms. A better bet, and to play an impending stock market recovery (I think), would be to invest in a variety of low cost mutual and exchange traded funds. Given the safety net of a paid off mortgage, my risk tolerance could be much higher, meaning I would be able to take some more risky type investments (commodities, foreign exchange trading) that are potentially more rewarding.

2. Education. This is investing in yourself and the returns from this are becoming a more in-demand employee which should lead to higher wages. More money allows more investments (see point 1), which means financial freedom is one step closer. I am starting on the road to pursue an MBA (more on this in a later post) and given they cost from $50,000 to $100,000 – the extra money from a paid of mortgage would definitely help pay off schooling costs.

3. Upgrade. A lot of people, once they pay off or get close to paying off their mortgage, decide to upgrade to a bigger house or better area. This means another big mortgage. Long term this will probably pay-off, but is it the best wealth building move for financial freedom? A lot of studies and statistics have shown that investing in stocks provides a better return in the long term. Upgrading your house to me is more a personal and family decision, than a financial decision.

4. Investment property – With the freed up cash, I could invest in a properly (apartment, town house) that can be rented out. If the rent covers the mortgage payment this is a zero sum investment and over time the investment property will provide capital growth and a growing stream of passive income. However becoming a landlord has its own challenges.

All the above are options I would strongly consider if I were in the position of having paid off my mortgage (a pipe dream for now!).  You should also consider rewarding yourself a bit and give a little bit to some good causes. $100 a month will do a lot of good for some charities and won’t hurt your bottom line too much, given your improved cash flow.

As you can imagine paying off your home is a huge achievement and it opens up so many more financial options to you and that is why it is close to my number one step for getting to financial freedom sooner. Do you have any other suggestions on what you would do with the money you freed up from paying off your mortgage?

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