The decision to invest excess cash or pay down a mortgage depends on several factors, including your financial goals, risk tolerance, and the interest rates on your mortgage and potential investments. Here are some things to consider:
Benefits of Investing Excess Cash:
Potential for Higher Returns: Investing your excess cash in a diversified portfolio of stocks, bonds, or other assets can potentially generate higher returns than paying down your mortgage. However, investments come with a higher degree of risk than paying down your mortgage, and there is no guarantee of returns.
Liquidity: Investing your cash in stocks, mutual funds, or other assets provides more liquidity than paying down a mortgage. You can sell investments and access the cash if needed, but it's more difficult to access money that you've put into your home.
Benefits of Paying Down Your Mortgage:
Guaranteed Return on Investment: By paying down your mortgage, you will reduce the amount of interest you pay over the life of your loan. This is a guaranteed return on your investment and can save you tens of thousands of dollars in interest payments.
Reduced Debt: Paying down your mortgage can reduce the amount of debt you have, which can improve your credit score and provide a sense of financial security.
Lower Risk: Paying down your mortgage provides a lower-risk option than investing your cash, which can be subject to market fluctuations and volatility.
Consider your financial goals, time horizon, and risk tolerance when deciding whether to invest your excess cash or pay down your mortgage. If you have a long-time horizon and are comfortable with some degree of risk, investing your excess cash may be a good option. However, if you prefer a more conservative approach and want to reduce your debt, paying down your mortgage may be the better choice.