To pay off or not to pay off the mortgage – that is the question we are facing. Now, we don’t have enough cash sitting in savings to pay it off with one fell swoop, but we could make a sizable dent and finish it off in the next five years or so.
While the thought of living mortgage-debt free is certainly appealing to us, the thought of draining our current cash reserves is frightening.
I’m a big believer in families maintaining a one-year emergency fund. In this economy, it might take at least that long just to get back on your feet again after a job layoff or major illness.
I also have reservations about diverting new earnings from saving and investing in an attempt to pay off my mortgage early.
The market isn’t necessarily cheap, but I believe there are a few good deals out there (particularly among high-dividend stocks).
And of course there are the usual needs such as college savings for our kids, saving for our own retirement, etc. So, I must be crazy for wanting to pay off our mortgage early…right? Not exactly.
One way to reach mortgage debt freedom faster is to purchase a foreclosure, clean it up and live in it.
Living Mortgage Debt Free
Imagine for a moment that you no longer have a mortgage payment due every month. Sounds freeing, doesn’t? It is.
I’ve talked with a couple friends who have paid off their house early and they say it opens up a world of opportunity because no matter what occupation you choose, you only have to have enough to meet your basic monthly needs (and enough to put a little away for later).
No big mortgage payment to force you to stick it out at a lousy job.
That sounds pretty appealing to me. I spent a lot of time in a lousy job when I was deep in debt because I felt trapped. No way I could leave a decent-paying job, no matter how dead end it felt, when I had a mortgage and other debts hanging over my head.
Even though we’ve managed to clear some of the other debts, that mortgage is still there, hanging over us every single month. I like the idea of just eliminating that payment and saving that same amount every month.
Imagine if you could save $1,200 a month. Imagine how fast you could build wealth. And without that $1,200 payment, imagine how much easier you could weather a financial storm than your neighbors.
Should I Pay Off My Mortgage Early: The Math
Obviously, the math doesn’t always support my crazy ideas. After all, mortgage interest rates are historically low these days.
It is hard to argue paying off a sub-5% loan early to put the money is a 1.75% CD, or expose it to market risks in a market that has already enjoyed a nice run.
Then again, to heck with the math. I’m not considering this move because it makes sense mathematically. I am considering this move because it will help me sleep at night.
I know that no matter what happens down the road, my family will always have a place to sleep, assuming we pay the property tax bill each year (seriously, do we ever really own anything outright?).
Not that I needed much convincing, but I think we will make paying off our mortgage a five year goal. So before my wife and I turn 40, we will be living without a mortgage.
You heard it here first. More to follow on our actual plan to get there.
Related Reading: The Benefits of a Mortgage Sinking Fund (the plan we are now using to save towards early pay off)