by Ashley
As of last month, my only remaining debts are for my student loans and my mortgage. I’ve written before about how I’ve decided to put the student loans on the backburner – paying only the minimum payment each month. They’re set to be forgiven through PSLF in approximately 2 more years. That brings us to the mortgage…
Current Mortgage Status
When my husband and I bought our home together in 2020, one of our goals was to have it paid off by the time my husband retires. He’s set to retire in under 9 years. We have a current loan balance in the mid-$200s. Since we bought it, we’ve made a double payment twice each year, and every month we round up our payment, so an extra $105 goes to the principal each month (on top of the portion allocated toward the principal from the mortgage payment, itself). We locked in an unbelievable interest rate – a fixed 2.625%, and our payment is reasonable for our budget, $1695/month.
At our current rate of payment, we will not have the home paid off by the time my husband retires, but our plan was to ramp up payments as incomes increase (with raises) and debts decrease (paying off my car and when my student loans are forgiven). I know it will take some making up on the back end, but the goal has remained constant: to have the house paid in full by retirement time.
As an aside just for context – my husband will retire in 9 years from his current position, but he will only be 50 years old at that time. He fully intends to find another job and continue working, but my hope is it could be a more flexible, maybe part-time or remote position. His income will definitely decrease in retirement, but it won’t be zero. He has a pension and healthy retirement account, plus plans for continued work on some level.
Mortgage Repayment Options
Recently, a neighbor who works in real estate was chatting with my husband and I about his plans for investing and building long-term income. He mentioned how one of his big financial mistakes with his wife was sinking all their money into their first home together. They’d put 35% down to get a low mortgage payment, but then the 2012 recession hit. Although their family was fine, he regretted putting all his money into his home. He wished he’d had liquid assets available to purchase a second property that could be used to generate rental revenue. The best time to buy, of course, is when prices bottom out!
The conversation got me thinking – is it really wise to put all this money into our home? What if, instead, we put those extra payments into savings with the goal to use it to buy a second property at some point that could be used to generate rental income? I think we all feel like the housing market is extra inflated right now. Although I hope the U.S. finances strengthen (I’d never hope for a recession!), another housing market bubble pop feels inevitable at some point.
Return on Investment
Paying off our house early would be great since it would be lovely to have no mortgage payments! But with our super low-interest rate, it doesn’t save us as much money as we could potentially stand to earn by putting that same money into another investment vehicle (property or stock market, etc.). All that said, my husband and I are both pretty financially conservative. And the thought of having a paid-off home just feels nice. Having a second property certainly comes with some risk – having two mortgages to cover, requisite repairs to be done, etc., etc. But property also tends to be a great investment. Please chime in if you’re an expert in this area, but I believe that over my lifetime the ROI for property has been higher than what the stock market has produced. At least in my areas.
I’m soliciting advice! What are your thoughts or opinions on paying off one’s home versus putting that money elsewhere? Would you suggest investing in real estate versus investing in the stock market (or something else entirely)? What would you do if you were in my position?
Hi, I’m Ashley! Arizonan on paper, Texan at heart. Lover of running, blogging, and all things cheeeeese. Freshly 40, married mother of two, working in academia. Trying to finally (finally!) pay off that ridiculous 6-digit student loan debt!
There are so many high yield saving accounts giving 4%+ right now, it makes much more sense to put your money there instead of toward your mortgage. Zero risk
I’m with you on wanting the paid off home, however I’m going to stack that extra income into investments and assess when I get enough to pay it off. Like you said there might be a real estate deal to be had or I might decide I really want my home paid off. Can’t wait to hear the opinions!
I think I am like you when it comes to paying off the mortgage. I want to pay off my mortgage early for a few reasons even with a lower interest rate (3%). First, I hate the idea of owning someone money, and it’s my only debt currently. Second, I have been in a bad place with the cost of housing before (a $1000 250 sqft apartment that was 50% of my income) and almost being homeless a few times. While there is still things like property tax and utilities, having all of my housing costs be 600 instead of 1500 sounds better to me than an investment. Which I know is most likely not considered the best financial decision, but it would make me feel safe and happy.
My husband and I were in a similar position. Bought in 2021 at a super low interest rate, put down about 30%. Initially we were making an extra payment towards principal each month. We did that for 2 years.
Husband got super serious about retiring early, and sat down and crunched the numbers. We make more money maxing out our retirement, Roths, and investing.
^most of the above we were already doing. Roths maxed, retirement either maxed (him) or as close to maxing as budget would allow (me). Ceasing the extra principal payments freed up money to either invest or up the contributions.
If you pay off your mortgage early in this period of inflation with that interest rate? You are costing yourself money. You’d be better off sticking extra money in a high interest savings account!
I nearly am in your position. I don’t have the student loans, but we have a mortgage with ~$100K to go at 3.75% and a car loan with ~$8.5k to go at 3%. We put our extra money into a Vanguard index fund instead of paying it towards either loan.
Over the last 9 years, we’ve averaged a nearly 10% return on the Vanguard account. I know that if the market takes a hit, so will our account, but I’m willing to bet that if we just ride it out, we’ll end up ahead in the end.
My husband’s talked about investing in real estate, but I’m not a fan of the extra work required for real estate vs. an investment account. Maybe we’ll reconsider if/when home prices drop some day.
I totally understand your wanting to truly have no debt, but with that low interest rate there is no way you should be paying off that mortgage that early. That money should be going to something making you money. Even 5% bonds or something similar. Or as you said, saving for an investment property (although the interest rates currently make that an expensive venture.
I’m not a financial advisor….but I think it is a good idea to look at this carefully. Because you have an AMAZING interest rate. We also have a low low rate on our home, and we aren’t trying to pay it off any faster than necessary. We are already retired, and have the money to pay off the mortgage, but overall you can expect to get 7% a year just in the stock market (not every year — but for long term). You can get 4.4 % on a Money Market savings account, and 5.1 % for a 12 month CD. I think paying off your mortgage has a nice emotional reward, but not sure it is financially the best choice.
The decision to pay off the mortgage is more of an emotional decision than financial. For now, stockpile the cash in a brokerage account. You can always decide to make a lump payment down the road or use it to say yes to another opportunity life throws your way.
For full disclosure, we paid off our mortgage this year and I don’t regret it for a second. Again, emotional, not financial.
We are in a situation where we could sell an investment property and almost pay off our primary mortgage. When I think of not having a mortgage it is so tempting on a really basic level but then I realize that it would make more sense to put that money in savings at a higher interest rate then our mortgage and take out a chunk at a time to pay the mortgage if needed.
We paid off ours 12 years ago (we are 58) and have never regretted it. So much piece of mind knowing that our house is ours and we are just responsible for property taxes to keep it ours. It also made paying for college for our kids easier as we had the extra cash each month so were able to cash flow the amount we didn’t have saved.