For years I had applied extra money to the principal balance of our mortgage because I held on to the notion that I wanted to be debt free as fast as possible. Keep in mind I had moved so many times over the previous 15 years (7) that I never stood a chance of ever paying off those mortgages. I have lived at my current residence for the past 6 years! Being a military brat I had been accustomed to moving that I never knew the joy of living in one place longer than 2 years.

About 5 years ago a friend of mine, whom is not a financial planner, advised me that I was making a foolish mistake by applying additional money to the principal each month and not investing the money. He spent 15 minutes of his time explaining why and ever since then I have never looked back.

Let's take me as an example. I had been applying an extra $250 each month to our mortgage in hopes that I would have our mortgage paid off by the time I retired. I'm currently 42 and I figure like the rest of us I would have to work until I was 65. So I have 23 years left to prepare myself for retirement. Keep in mind I have been contributing to my employer's 401k religiously and have a pension coming from a previous job. So I figured that I was well ahead of the game.

My friend said "John, why don't you take that extra $250 per month and invest in an Roth IRA?" So we did the math. Now, for arguments sake, let's just say that I invested $3000 for the next 23 years in that Roth IRA, how much money would I have? Again assuming a minimal return of 9% each year in addition to the annual contribution of $3000 I could have $227,369 tax free!

So I said but what about my mortgage balance? Again, we sat down in front of my computer and pulled up an amortization schedule online. How much would I still owe on my mortgage if I didn't apply any money to the principal? Again, to my surprise I would owe less than $65,000 on our mortgage by the time we retired.

It was a no brainer for me. I could take the tax free money from the Roth IRA and payoff the mortgage balance at retirement, $162,000,  and still have plenty left over for the Safari to Africa and the BMW of my dreams!

What about you?

One of my favorite websites is www.dinkytown.net. It's full of calculators, mortgage, retirement, personal finance, investment, taxes, credit card debt, etc.... Go for a ride and see if it's in your best interest to payoff that mortgage or invest the money?