Personal Finance and Investing

Economic opportunity cost basically is what is the cost of your decision. You have a binary decision to make; to pay off the mortgage or to invest the money. Please note, each person's situation is different and one solution doesn't solve everyone's problem. I know it feels good and it's the "American way" to have a mortgage paid off but it doesn't always have to be that way.

You have two choices to choose from. If you pay off the mortgage, you'll be saving the monthly payments which you could invest in the markets but you'll no longer have $80,000. If you invest in the market, your investment could grow considerably. So the question comes down to what is the cost of paying off the mortgage versus investing the $80,000.

Option 1: Paying off the mortgage
I don't know what your monthly payments are but let's say it's $1,500 per month or $18,000 a year. If you pay off the mortgage it would take you 4.4 years ($80,000/$18,000 = 4.4) to recoup your $80,000.

Option 2: Invest the money
Use the Rule of 72 to determine how long it will take to double your investment. The Rule of 72 is to divide the interest rate into 72 and the result is the number of years it will take to double. If you invested the $80,000 in the market with an expected conservative return of 8%, it would take you 9 years (72/8 = 9) to double your money. In 9 years, your $80,000 would, theoretically, double and grow to $160,000.

So what you need to consider is what are your current and projected needs over the next 10 years are? If you don't need the money from paying off the mortgage then invest the money in the markets. Word of warning: there are risks in markets and they are not guaranteed to continue rising and you could lose or make money.

What you'll need to do is to sit down and do the math on both options and choose which one is best for you.