I have never met anyone with a paid-off home that regrets their decision.
I paid almost $9,500 in interest last year on my mortgage.
Personally, I have flip-flopped on this debate many times. There are times when I throw extra money at my mortgage and other times when I just pay the minimum.
The argument is that you earn a lot more by investing in equities long term than what you lose in interest by paying down your mortgage. Those in the financial space state that you can use your equity earnings to pay off your home in retirement. If I do that, by the time I am done with my mortgage I will have paid over $150,000 in interest.
I understand that in twenty years, I can more than double my investments even if I never deposit another cent.
However, in two years I have lost 7% on my equity investments.
I know that we are in extraordinary times right now and that this isn’t the most accurate representation of the stock market. Nonetheless, I question why people say it is dumb to pay down your mortgage? I am a long-term investor and I know that my money has time to recover from these difficult times. Yet, I still don’t see many financial setbacks from paying off your mortgage loan early.
Both sides make sense to me and ultimately it will come down to preference.
You can make good money investing in the stock market long-term, and you can save a lot of money by paying your mortgage down early while also never having to worry about having a place to live.
What people don’t emphasize enough is what you really get from paying down your mortgage. Financial experts weigh in on this topic.
Suze Orman says, “You will never, ever, ever have financial freedom if you have debt.” Your mortgage is a debt. A debt that is compounding over time. The more money you send, the faster you will have this weight lifted off your shoulders.
Kevin O’Leary says, “paying it off should take a higher financial priority than using extra cash to invest in things like stocks or bonds.” I think you can do both. I would invest either at work or Roth IRA in addition to paying down home if you can. Once you are done paying off your home you can focus on putting more into equities. The argument here is that you will lose the gift of time, which is how wealth is built with equity investing. In looking at the above numbers, I say that you can also argue that you may even out. The value in your home is increasing the longer you remain in it.
I purchased my home 5 years ago at $475,000. It is now worth $800,000. If I pay it off my net worth will be close to a million dollars with my equity investments and emergency fund.
Finally, David Back states that you will have more choices in life by paying down your home. One choice being, retiring early or working part-time. To pay down your mortgage sooner he suggests that everyone take out a 30-year mortgage with the goal of sending extra each month and paying it off in 15-20 years. Start small. If your mortgage is $2,400 call your mortgage company and set up bimonthly payments of $1,250 monthly. That way you will be sending an extra $100 per month. The following year call the lender again and pay $1,300 bi-weekly. Every year increase your payment and see your equity go higher and your payoff amount decrease.
Do you still think that paying down your mortgage is dumb?
Once you are done paying off your mortgage you will have to pay property taxes and home insurance. That amount will depend on where you live. There are laws being written to try to let retirees off the hook-on property taxes. If that is the case, you would only have to pay home insurance in your late years.
People will say that mortgage loans have low interest so you shouldn’t worry about paying it down. However, as seen in the graph above, even with a low interest payment on a huge loan (which most mortgages are) you are paying a lot of money in interest yearly.
Writing this article has inspired me to send a little extra to my mortgage moving forward. I will take my own advice and raise my extra principal amount yearly. The goal is to increase your net worth to your goal number. How you get there is up to you. Don’t let people shame you out of paying down your mortgage.
Leave a Reply