Personal finance blogs and experts are generally against paying off your mortgage early. With interest rates at record lows, they’d recommend that you refinance and put your extra money in the stock market where it will yield a higher return.
But I’ve decided not to take their advice and start making extra principal payments on my mortgage. Here’s why.
As a freelance writer, my income can fluctuate from month to month even in good times. But the pandemic has been extra hard on my business. I lost a few clients right around the same time due to the economic impacts of COVID.
I’m lucky to have a partner with a stable job and emergency savings to help tide me over. However, it was still challenging to have a big chunk of my income disappear practically overnight.
Now that the economy is bouncing back, I’ve been able to rebuild my client base. But if the recession had lasted longer, I don’t know if my emergency fund would’ve been enough to get me through that slow period.
My mortgage is my biggest expense by far. So if I pay it off early, I’ll be in a better position to deal with income fluctuations. I’ll also be able to weather the next recession without having to worry as much about paying my bills.
Peace of Mind
I’ve never enjoyed the feeling of being in debt. Having a mortgage hanging over my head is stressful. Knowing that I could lose my home if I can’t make my payments can be nerve-wracking sometimes.
Even though I’d get a higher return on my money by investing it, paying down my mortgage faster gives me peace of mind. With the extra principal payments I’m making every month, I’m on track to pay off my home in about a decade.
I’m looking forward to making my final payment and having this big weight lifted off my shoulders.
Although my mortgage has a relatively low rate of 4%, I would still owe a lot of interest if I paid it off over the 30 year term. My original loan balance was only $179,000. But I would have to pay a whopping $307,646 if I followed the bank’s payment schedule.
If I keep making extra principal payments and get rid of my loan in ten years, I’ll save about $90,000 in interest, which is a big chunk of change.
Easier to Retire
Another big plus about paying off my mortgage early is that it will be easier to retire. Although I’ll still have to cover taxes and homeowner’s insurance when my home is paid off, my housing expenses will be much lower. This means that I won’t have to build up as big of a nest egg in order to exit the workforce.
Although I don’t plan on retiring early, you never know what will happen. I have chronic illnesses that could get worse over the course of my lifetime. So it’s possible that I’ll need to give up my job at some point. Having my home paid off early will give me the option to leave work to focus on my health if necessary.
There’s no doubt that my brokerage accounts would grow faster if I stopped making extra mortgage payments and invested the money instead. But paying off my home early will give me immense peace of mind, so I think it’s the right financial move for me.
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