Invest or pay down mortgage?

Question

My wife and I have two multi-families purchased within the past couple years that are on 30 yr mortgages (4.625 and 5.125%) with 25% down and loan balances of about 300k each.

I have some extra savings to invest - about 100k.

Would you advise adding it to my SEP retirement account which is invested in index funds or apply it to the highest 30 yr mortgage to pay it down?

Matt Leber · Answer

@Eric D. Your tenants are paying it down for you, so you should rest assured in investing your savings to generate more money for you. Of course it depends on your strategy, but I would say invest it as long as you can make a better return than the 5.125% with that money.

Eric D. · Answer

I do not want to buy additional properties. Too much work, and I am too busy. And it is a hard biz in north Jersey.

Since I am self employed, my goal is to create security and retire early

Michael Lewis Lee · Answer

Hello Eric!  That is a loaded question.  It depends on your goals, the deal and the savings with going both ways and your comfort with debt.  If you are comfortable with "good" debt, it will probably be better to invest with a new property and possibly saving some cash vs paying down a current loan.  Equity also helps with your solution.  You might need advice from a tax consultant as well.  Good luck to both of you!

Ned Carey · Answer

@Eric D. Paying down a 5.125% mortgage has the exact same affect on your net worth as investing at 5.125%.  Personally I don't want to invest at rates that low.

Justin R. · Answer

This is 100% dependent about your personal situation, and goals.

Loan pay-down - safety thru equity

Reinvest - maximize opportunity through leverage

Only you know the answer, but best of luck!