So you’ve started living below your income level, eh? Paid off some high-interest debt and have some cash you want to put to work for you? That’s great. Got a mortgage? If so, another set of decisions is now facing you. Should you invest your excess income into long-term investment vehicles like stocks, bonds, 401ks, IRAs, etc.? Or should you concentrate on something like your mortgage, which hits us all a little closer to home? A quick search on the internet will show you plenty of opinions and articles on this topic. There are also plenty of people asking this question, so obviously it’s not cut and dry. I’d like to contribute my opinion and experience, and share with you why I chose to pay off my mortgage early instead of try to earn higher interest rates on my money by investing elsewhere.
My First Mortgage Shrink
Four years ago my wife and I lived in a 4-bedroom home that would have provided many years of use for a small, but growing family. We had 2 mortgages with different interest rates, one at around 4% and one around 6.5%. For a few years we had been adding just a little bit (like $50/month) to our monthly payment, because it seemed like the responsible thing to do. After reading Your Money or Your Life our perspective regarding our house and our money began to drastically change. Instead of a comfortable future-proofed home, it began to feel more like an oversize, 25-year-money-suck that would soon become a giant roadblock on our road to FI (and living more simply in general).
So we moved as soon as we could. We cut our mortgage in half, our square footage by 30%, our interest rate to 3.9%, and reduced the time it would take to aggressively pay down our mortgage(s) from 9 years to 3 years. What a thrill! We have since revised our timelines a little bit (adding a second child wasn’t exactly free), but the plan is still moving forward at an amazing pace. We see that finish line rapidly approaching.
Like A Piece Of Art On The Wall
There a certain sense of satisfaction that comes with editing my mortgage amortization schedule in Excel every month (I’m a little bit nerdy like that). There’s also the benefit of having a defined goal (and a chart to show it) that my wife and I can agree on, discuss, and look forward to together. It’s similar, in my mind, to “investing in” a piece of art in your home. Maybe you buy a painting and hang it in your living room. Not only do you hope that the art’s value increases over time, but you also get to enjoy the art in the present. It’s returning value to you in the short term that isn’t quantifiable.
In the same way paying off a mortgage is more “tangible” than investing. It’s right in front of us. We’re not padding an investment account, making ourselves feel richer. We’re eliminating excess baggage and feeling lighter.
Other Benefits Of Paying A Mortgage Off Early
In Proverbs, there is a verse that says “The rich rule over the poor, and the borrower is slave to the lender.” While you may dispute the biblical evidence on debt in general, there’s no denying the practicality in that verse. Owning a home outright and not having the urgency of making that “minimum payment” every month hanging over your head is powerful! It changes your mindset when making decisions on career, income, side-jobs, priorities, etc.
Another practical reason to concentrate on your mortgage first is that you are getting a guaranteed return on your investment (4%, in my case). With the short time-frame we’re looking at for paying off our house that’s not going to amount to much, but it’s guaranteed that I won’t lose any money that way, which is obviously not always the case with the stock market.
So what are your thoughts on my plans and my logic? I welcome your opinions, and would love to hear how others have fared after making their own decisions in this area. Do you wish you had done anything differently?