Pay Off Your Mortgage or Invest?

Knoxville Financial Q&A Episode 6 | Pay Off Your Mortgage or Invest?

May 26, 2026

Should you pay off your mortgage or invest the money instead? Like many financial-planning questions, the answer depends on more than simply comparing two rates of return.

In Episode 6 of the Knoxville Financial Q&A Show, Paul Ragone and Brian discuss how mortgage rates, investment opportunities, cash flow, retirement income, and even peace of mind can influence the decision. Someone with a low-rate mortgage may view the decision very differently from someone with a higher borrowing cost, while an individual approaching retirement may place additional value on eliminating a monthly mortgage payment.

The conversation also looks at rental real estate in Knoxville and whether purchasing an investment property makes sense compared with investing in stocks. Potential returns are only part of that decision. Property prices, financing costs, taxes, maintenance, tenants, and the time required to manage rental property all need to be considered along with the potential income.

Finally, Paul and Brian discuss lifestyle inflation—the tendency for expenses to increase as income increases. Higher earnings can create opportunities to save, invest and improve quality of life, but those benefits can disappear when spending rises just as quickly.

For people living in Knoxville and East Tennessee, lifestyle planning can include everything from housing and travel to boating, golf and outdoor recreation. The goal isn't necessarily to eliminate those expenses, but to make sure they're incorporated into a financial plan that supports both today's lifestyle and tomorrow's retirement.

Watch Episode 6 of the Knoxville Financial Q&A Show above for a conversation about mortgages, investing, Knoxville real estate, lifestyle inflation, and how these decisions can fit into a broader financial plan.

Transcript

All right, welcome to the Knoxville Financial Q&A. This is episode six. I'm your host, Paul. I'm Brian.

Today we're going to answer three questions. Two of them are just ones that we get the most commonly asked. The third one comes from someone who sent in a question. So, let’s just get right into it.

The first question we have, Brian, is: should I pay off my mortgage or invest instead?

Yeah, that is one we get asked a lot. I think the simple answer to that one is just: can your investment returns generate more than your cost of a loan?I know it’s way more complex than that, but I feel like that’s the simplified answer.

It’s a very simple answer, but it’s correct. Five years ago, this question was almost a no-brainer, right? Interest rates were so low that it was pretty much, of course invest. It’s not the same anymore. You have to pretty much go by a client-by-client or situation-by-situation basis.

Yeah. Because if you have job changes or any sort of income shift, or a wife stops working and wants to stay at home, all those factors matter.

So would you say if your mortgage rate is at 3%, you locked in in 2015 at 3% or something like that—

Ride it to the wheels fall off. Exactly.

So the gray area becomes now what happens if it’s 6.5%?

Yeah. Then you start to think about how those amortized borrowing costs matter significantly. I think when you hit that 5.5% to 6% range, it’s almost double what your house costs on a 30-year note.

Yep. So if you buy a half-million-dollar house, you’re paying a half-million dollars in interest. That’s crazy to think about.

Most of your beginning mortgage payments are mostly geared toward interest only.

Yeah. Ninety-plus percent.

At least. So let’s say you might have five years left on your mortgage, you’re pretty much only paying principal at that point. That’s something to consider as well because it’s not really costing you as much anymore.

Right. So you’ve already paid a big bulk of the interest at that point.

Yeah. Look at factors like our real estate in Knoxville and Farragut and all the other areas around here. We’ve had such an influx of people from out of state that our real estate prices have gone way up. So you factor in that cost of real estate along with the cost of a loan, it’s brutal.

It’s a tough decision for some people. My clients are older than Brian—I say this all the time—and they’re approaching retirement. Some people just want peace of mind. They don’t want to have to deal with having a mortgage. If you don’t have a pension, you’re potentially going to be in a lower-income situation and you don’t want to deal with a mortgage payment.

Unfortunately, we’ve said this before, but you never really own your home because you always have to pay property tax on it. It would be cool if—I’m not even sure if this is being discussed in Tennessee for real—I heard they were planning on potentially eliminating property taxes.

I think Florida is pretty gung-ho on it.

But here, let’s say you paid your house off. Start there. If you pay your house off, you own it. No more property taxes. That would be a good start in my opinion. Then after that, spread it out, see how it works. There’s a reason a lot of people are moving to Florida. There’s also a reason a lot of people are moving here. It would just be nice to actually own your home.

Either way, if you’re eliminating a mortgage payment and you’re going into a lower-income situation, the peace of mind—I don’t know if you can really put a value on that. There’s no planning software that factors in, “I don’t have a stressful overhead payment this month or any month after that.”

Exactly.

What’s the next one we got?

The next one is: should I buy a rental property or invest in stocks, especially in Knoxville?

Yeah, I get asked this one quite a bit. I have friends that are successful in real estate in this area and I have friends who see that success. They always ask, “Maybe I should be doing this.”

Knoxville in particular is a little bit unique because we don’t have situations like Detroit, where all the car manufacturers moved elsewhere and the city collapsed. Knoxville doesn’t have that situation. Between the University of Tennessee and all the major facilities in Oak Ridge, the economy is always going to be pretty stable here.

If you want to talk about actual data, you can do a simple Google search on this, but the returns on rental property here in Knoxville are between 6% to 12% leveraged. The stock market has historically returned between 8% to 10%.

The question really is whether those differences in numbers are worth it if you actually want to be a landlord and have to deal with whatever goes wrong in the house that you own but don’t live in.

Everybody wants to be a landlord until you have to do landlord things.

Yeah. Quite honestly, I had several clients that came in with rental properties and they couldn’t wait to unload them. These are older clients approaching retirement, and I can understand why.

I think a good scenario for possibly owning rental properties would be if you’re empty nesters, one of you works, the other one stays home, maybe is bored, and is willing to take on the responsibility of managing those rental properties.

That’s a lot of where my conversations steer. When I start getting asked that, most of my conversations become less about returns and more about lifestyle. I have an acquaintance who owns apartment complexes and duplexes. We’re talking about $40,000-plus a month in rental income. It’s great money.

But he has a stack of three cell phones. If you can get him to a lunch appointment, which is borderline impossible, one of those phones is guaranteed to ring. Everybody wants to collect that check until the garbage disposal breaks on a Saturday morning or the dishwasher dies.

Most people that are successful in it do it because they love it. I don’t think they’re always measuring ROI. Maybe it was inherited, maybe they built into it over time, but they genuinely enjoy it.

The leverage part matters too. If I have a widget I can sell for a dollar and I only have $10,000, I buy 10,000 widgets and sell them. To maximize that, you leverage it. But borrowing money adds carrying costs and overhead. It’s not as sexy anymore.

If you love real estate and you’re destined for it, invest in real estate. Most people, though, that’s probably not the scenario.

I agree. Knoxville housing prices have increased substantially over the past few years. Add that on top of increasing mortgage rates and it’s not really a good scenario.

Right. What if you have really bad tenants? What if 2008 happens again? What if you just bought a house for half a million and now it’s worth $220,000?

Exactly.

If it was 2020 or 2021 and housing prices were where they used to be, maybe rental properties made more sense back then. But where they’re at now—and by the way, I don’t think we’re overpriced, I think we just caught up to where we should have been—if you’re looking at it right now, I personally would not want to be a landlord.

I don’t want a call at one in the morning that the hot water heater went out. I don’t care how much it’s cash-flowing, which by the way, it’s probably not cash-flowing much if you’re buying right now with current interest rates.

There is one scenario that might make sense. I’ve had this happen with clients where they move out of their existing house they’ve lived in for a while and buy a new house without selling the old one. In that case, the client knows the house. They know when the water heater was replaced, when the roof was replaced, and they can project potential expenses.

Assuming good tenants.

Assuming good tenants, right. That would be the only situation where I’d personally consider renting out a home.

That’s probably fair.

Is there anything else you can think of?

Yeah. One thing that impacts ROI is being able to write off expenses. If something goes wrong, you can write off the repair. You can also write off loan costs if you’re carrying a mortgage. So there are some tax benefits there.

If you’re not close to retirement and you just plan on diversifying your portfolio overall, rental properties are not the worst situation. I just personally wouldn’t do it right now in Knoxville.

I was reading something about the old 60/40 portfolio not working anymore. One alternative they mentioned was a 60/20/20 portfolio: 60% equities, 20% bonds or fixed income, and 20% real estate. I thought that was a cool concept because it creates more diversification.

But again, it still comes back to whether you actually want to be a landlord.

Yep. I agree with that. If this was something I really focused on, it would probably be close to UT because of the amount of student housing needed. Even though they’re building like crazy, there’s still not enough.

Those properties will probably always have value for renting to students, but then you also have all the problems that come with renting to students.

Personally, I’d rather invest and not deal with any of that.

I think our next question is from Michael. His question was something like this: “I live in Farragut. I make really good money. Everything seems to be getting more expensive. What’s the deal?”

We’re going to paraphrase that for you, Michael, and say what you’re probably experiencing is what we call lifestyle inflation.

Lifestyle inflation can equate to so many different things. You always want a bigger house. Me, I always want a bigger boat or a nicer boat. The reality is sometimes it just doesn’t make financial sense.

If you have all your priorities in place—your emergency fund, retirement savings, maybe your house is close to paid off or you have a low interest rate—then maybe consider those things. But if you want to keep up with the Joneses, you’re probably going to end up hurting yourself.

You end up broke with the Joneses.

Exactly. If you save and invest properly without worrying about the Joneses, eventually the Joneses will want to keep up with you.

I’ve always used this illustration: here’s your income, here’s your expenses. The two best ways to improve quality of life are increasing your income or decreasing your expenses. Ideally, you do both.

I call that gap the “quality of life gap.” If you make really good money and keep your expenses low, you’re able to go on more vacations and do things most people can’t do.

Most people, when they get a pay raise, buy a new car or a new house instead of just investing the raise or building their emergency fund.

Lifestyle inflation is real, Michael. That’s probably more of what you’re experiencing.

I look at my own house. In 2017, $150,000 to $200,000 bought a pretty good house. That same property is now $550,000-plus. That wasn’t even ten years ago.

So if you bought a house recently and you’re experiencing lifestyle creep, it’s not just you wanting nicer things. Everything is getting more expensive.

One thing I’m most guilty of is subscription creep.

That should absolutely be a coined phrase.

I’m totally guilty of that. I don’t even know what I pay Apple every month now. Netflix, streaming services, all of it. Someone says, “Have you seen that show?” and suddenly I’m subscribed to another service.

“It’s only seven bucks a month,” right? Times ten.

Exactly. Add all those up and you’re paying a substantial amount every month.

Some of those things I probably don’t even use anymore.

Sure. And if that’s what you value and enjoy, maybe don’t skimp on it. But if you’re not using it, that’s a problem.

The other thing I’m guilty of is the boat. I have a modest boat, but the slip rental at Concord Marina is not modest. It’s a substantial expense.

It’s like a mortgage payment.

For some people, absolutely. Then on top of that, we live in a neighborhood with a pool and HOA fees.

And then there were several golf carts that started appearing in the neighborhood. For some reason, I just wanted the nicest one.

My midlife crisis was pretty modest. It’s not a Corvette. It’s just a really nice golf cart—or technically not even a golf cart. It’s a family hauler.

And I love it when we use it.

I saw a side-by-side recently that was fully enclosed with air conditioning, heat, and CarPlay. It costs more than a car in some cases.

That’s crazy to me. It’s basically not a golf cart anymore.

This all relates specifically to Knoxville and East Tennessee because of our topography. There are so many cool places here to use side-by-sides, boats, all of that. That’s why marinas are so expensive. Slip rentals are in huge demand.

We’re very blessed recreationally here between mountain biking, road biking, golf, lakes, and everything else.

This ties back to retirement. How do you want to live in retirement? Because doing all those things on weekends isn’t cheap.

If you want to do those things and it improves your quality of life, great. Just make sure you have your bases covered first.

Plan for it.

Exactly.

With that said, we’re wrapping this one up. Keep sending your questions and we’ll answer them. The best way to see our videos is just type in wealthy.com.

You can also schedule on our website or send us individual emails.

And if you go to wealthy.com, it takes you directly to the page where all the videos are hosted. As soon as you scroll down, there’s also a place where you can ask a question.

With that said, signing off.

Signing off.