Would you pay off your mortgage if you could?

[Snowgirl]

I have enough in my retirement account to do that, but it'd be foolish! As others stated, I see no reason to tie all my assets in my mortgage and be cash poor. My payments fit well within my budget, and my investments grow at a better rate (over 10%, except last year with the Canadian stock market tanking...). But I'm still young and my home will be paid off before I'm 40, way before I retire, which will enable me to sock more in non-retirement investment then. Right now I just maximize my tax deferred retirement account at 18% of my salary, and let it grow. With the actual contribution levels and projected growth, I could completely retire by 55, and even support mortgage payments if I still had any! I think the overall plan fits well, especially since I don't intend to sell my house when I retire.

[disneysteve]

Originally Posted by TBH

But I'll tell you this--it would be a question of which was the best for me psychologically, not a question of whether I'd make a couple percentage points more if I invested the money. I'm not confident enough in my investing skills to let that be my main reason for NOT paying off my mortgage.

This is a great point and shouldn't be ignored. As much as we talk about what is best from a dollars and cents standpoint, it doesn't matter if going a certain way would keep you up all night worrying. Sometimes you have to consider the emotional aspect of your decisions.

Here's my personal example. I finished school in 1993 and had to start repaying $102,000 in student loans. I was lucky and those loans were at very good interest rates, around 4%. Surely, I could have done much better investing my money and just paying the minimum on the loans. However, my daughter would have been a college graduate by the time I repaid those loans if I hadn't accelerated the payments and that just struck me as insane. So I paid them off in 12 years instead of 25. Having the loans just really bugged me so I worked hard and got rid of them early. It wasn't the best financial decision but it worked best for me at the time.

[Like2Plan]

We did pay off our mortgage early. I am planning to retire in about 3 years and I want to get our expenses as low as possible.

The money we are saving from the mortgage payments will not go into investments. We are saving to have some maint/repair and improvements done to our property and we want to do each project with cash upfront. After we get a handle on that, I expect we will put the money into a travel account where we can draw from it whenever a good deal comes up.

[scfr]

Originally Posted by Snowgirl

I have enough in my retirement account to do that, but it'd be foolish!

It would indeed be foolish to use your retirement account to pay off your mortgage. However, OP stated that retirement savings were not in quesrtion.

If you have consistently maxxed out your tax-deferred retirement savings and are on-track where you need to be as far as retirement savings, if you have a cushy EF, and if non-tax-deferred savings would just be sitting in a high-interest MMA, then it is quite likely pre-paying your mortgage is a good option for you.

[disneysteve]

Originally Posted by scfr

If you have consistently maxxed out your tax-deferred retirement savings and are on-track where you need to be as far as retirement savings, if you have a cushy EF, and if non-tax-deferred savings would just be sitting in a high-interest MMA, then it is quite likely pre-paying your mortgage is a good option for you.

This pretty well describes my situation. And that's why I do currently prepay my home equity loan with a small portion of the money designated for savings. Once the HEL is gone, I'll redirect that portion to the primary mortgage. But as scfr says, I've got a good EF, I max Roths for my wife and me, my wife puts 50% of income into her 401K, we fund a 529 for our daughter and we have some other taxable investments. After all of that, some of what is still available goes to the mortgage.

[Coleroo]

we would in a heart beat... to us its psychological. we're only both 25 years old...having our mortgage payments (which we hate being tied to) until we're 53 is a huge burden on our minds.

Granted though, we have 8.99% interest mortgage and only 4.25% savings interest. plus our mortgage is only 80k. we can't really say what we'd do if those numbers were different.

[Snowgirl]

Originally Posted by scfr

It would indeed be foolish to use your retirement account to pay off your mortgage. However, OP stated that retirement savings were not in quesrtion.

Guess I've skipped over that too quickly, sorry!

Originally Posted by scfr

If you have consistently maxxed out your tax-deferred retirement savings and are on-track where you need to be as far as retirement savings, if you have a cushy EF, and if non-tax-deferred savings would just be sitting in a high-interest MMA, then it is quite likely pre-paying your mortgage is a good option for you.

Well, I don't think it will happen for a long time, because we spend it all! Besides retirements (18% of income), and a 3/6 months EF (3 months if we both lose our job, 6 months only one job lost), all our "saved" money eventually get spend on home improvement, or big purchases: vacation, appliances, ... But otherwise, I still don't think I'd pay it off, would rather invest in stocks to get more return (mortgage is only 5.75% currently, variable rate), still, we already pre-pay a bit with the bi-weekly plan, which gets us to that mortgage paid by 40, unless we move up!

[lucasrd]

Only if I had so much cash it wouldn't make a dent.

I'm a firm believer in the power of compound interest. If you look at the curve it is pretty flat for a while then ramps up exponentially later in life. I can't justify giving myself a set-back early on the curve.

for instance I could pay off my mortgage today, but doing the math it would set me back years on the compound interest curve. Rather i'll make the payments, let compound interest work it's magic and have much more money later in life.

[simpleyme]

another thing that motivates me want to pay my mortgage off sooner than later is my loan is commercial and I have to send a copy of my tax returns to the bank
I hate doing that ,I am not sure why I hate it so much

[toptaxguy]

Typically if you can earn more through alternative investments after tax, then you are better off investing the money. If you can earn less than 5.5% on investments, then pay off your mortgage and invest your free cash.

[kilapapipa]

Originally Posted by Coleroo

we would in a heart beat... to us its psychological. we're only both 25 years old...having our mortgage payments (which we hate being tied to) until we're 53 is a huge burden on our minds.

Granted though, we have 8.99% interest mortgage and only 4.25% savings interest. plus our mortgage is only 80k. we can't really say what we'd do if those numbers were different.

When we were both about 36 (39 now), we were in your situation a bit. We were 5yrs into a 30yr mort. @ 7%??

Should we put more into retrirement or pay down the mortgage. Well, 15yr rates went to 5% and the payment was more but still allowed us to increase retirement.

In short, if you can go to a 15yr. at 5% or so and make the payment, I don't think you will regret it and once you have overcome the payment increase, you might be able to include a little more into retirement. To us, we felt this was the best overall move for paying down our mortgage and funding retirement at the same time.

Given our current situation, if someone handed me the money to pay down my mort., I think I might invest it otherwise instead.

[Snave]

We just refinanced and pulled money out. So I guess I am a definite "no." We purchased our home earlier this year and the rates were about 6.5% and we put a significant amount down. When the rates went down we knew we were going to refinance, so we figured we would pull out some cash to strictly invest. We thought it was great to put down such a large amount (about 65%) initially, but realized we could make that money work in better ways. We aren't using it for anything other than investing. We added to our sons 529 and then invested the rest.

[zetta]

I could sell my non-retirement investments TODAY and pay off the mortgage, but I won't. Last year I earned 12% on the investments and only paid 5.125% on the mortgage.

[maat55]

I wouldn't have 150,000 in savings first of all. Most of that money would be in MF's. But if that was the only place I would have the money, I would keep about 30,000 in savings and pay the rest toward the house. I dream of the day I pay my house off, but not at the expense of my retirement.

[flavor]

We paid off the mortgage as soon as we had enough saved. It is the best thing we ever did. We could've invested the money somewhere else, but to us it made more sence to pay it off. It's been 3.5 yrs since we did that, and so far we've saved over 70K, and that has nothing to do with the 401K, IRA and pension investments we have. Our goal is for husband to retire at 60, 12 yrs to go, and so far we're doing extremely well.

[BabyBear]

I know it's not much, but I have been rounding up my payments since my first payment was due in Aug 06. I was rounding to the nearest $10, but I have since raised it a bit more so it's an even $700 a month (that includes interest, principal, property taxes and homeowner's insurance). I have been putting $5 a pay into an online savings account each week to build up a little bit of interest (I know it isn't much). At the end of the year, I will take that money and put it towards principal to pay it down earlier.

It's just a personal goal for me because I want to have my home paid off as early as possible. I still have a long ways to go on paying it off and my extra $18 (plus some change) per month isn't much. I'm 31 with no kids and when BF sells his business and starts earning a "real" income (not going straight back into the business) it will help too. But, I know that kids will change the budget as well........My main focus right now is mainly retirement and building the EF.

So, to answer the original question: if I had EXACTLY the amount to pay it all off, would I? Probably not: ONLY because that would wipe out my entire savings. I'd want to keep some available for "just in case".

[maat55]

coleroo

You are in serious need of refinancing your loan. I don't know if you can based on your fico, but you should pay your debts on time for awhile then attempt to refi in the near future. If possible you may want to look at a 20 year note.

[kilcher]

I wouldn't do it. It's nice, in theory, but not practical. I would definitely recommend paying extra toward the principle if you're able.

Interesting topic though. Our goal is to have enough to pay it off (but not do it). Kind of reminded me of this blog post by a fellow forum member...

Living Almost Large: Debt Free or Free of Fear?

[LivingAlmostLarge]

Thank you. And I'd prefer to stash the cash and make one large lump sum payment. That is if I weren't investing the difference (which I would do).

[anonymous_saver]

I will probably buy a house in the next 1-2 years, probably with approx. 5-10% down depending on if I'm buying alone or with a partner. I will prepay my mortgage up to the point of having 20% equity, so I would no longer have PMI. After that, my current goal is to ensure an 8 month emergency fund (since it may go down a bit because of repairs while I am building up 20% equity).

Then I'm undecided of what my next step will be. I already put 25%+ of my income towards retirement, and by this time I will probably be having a different classification of job at my empolyer which will be an additional 13% from my employer into a 401(a) [plus an additional required amount of 2.5% fro me]. This is a pretty large % of saving for retirement, that at this time, I will probably split extra money toward my 457 plan and extra payments for my house.