Pay off debt or add to target index fund

Question: if you have a lump sum, do you want to pay off your house or would you put all that towards the index fund pushing close to the 1 mil mark?

Hi @Lunger2006! Thank you for the question!

It depends on a few factors. Generally, the best practice is to pay down high interest debt (e.g., credit card debt, medical debt), and invest the rest. However, in this case I wouldn’t consider a mortgage high interest debt since I’m assuming it’s between 3-5% interest.

The long run return of the stock market is closer to 10%, so generally it wouldn’t make as much sense to use the money to pay off a relatively low interest mortgage. But it can also depend on your age and which target date index fund you would be investing in. And it would depend on your liquidity needs (paying off the mortgage will make the money much more difficult to access should you need it).

Paying off a mortgage can make sense if it gives you peace of mind knowing that you own your home completely debt free. You can’t put a price on peace of mind!

So, it very much comes down to a personal decision, but those are some of the factors that may be worth considering!

I hope that helps! Let me us know if you have any other questions!

My thinking…why pay off the mortgage? The bank isn’t asking you to pay it off. What if you use all that money to pay off your mortgage and tomorrow something happens that requires a lot of money? Could be anything. If that happens, the bank won’t give you the money back. I’m a big fan of a long drawn-out mortgage. Personally, my mortgage is the only debt I have, and I’m 100% ok with that. Our interest rate is very good and our payment is very manageable. We make monthly contributions to our taxable brokerage account and if we do get “extra” money (bonus etc) that goes in there as well and not to our mortgage company. Just my .02.