New Reasons to Pay off your Mortgage Early

by Sandy L on August 4, 2010

One of my favorite PF blogger articles of all time is  “Should I pay extra on my mortgage or invest?” Even though I’ve read about 100 of them and they all have similar arguments, I’m just drawn to read it anyway. It’s like those stories of vampires having to pick up all the sunflower seeds after a spill. Mortgage payoff stories are my sunflower seeds because I gobble them up waiting for that one new bit of advice that will change my mind.

For the record, I’m in the “pay off early” camp and I thought I’d list my reasons why our family chose to pay a little extra every month.

  1. Because I have a crazy extreme frugal role model who bought her first and only house with cash
  2. Because debt reduction is completely brainless. I love that I don’t have to think about ranking the best ways to pay off my debt.  There is really only one way to do it. You pay your bills,  see what’s leftover at the end of every month and decide how much of it will be going to your favorite mortgage company.
  3. Because I want one less bill to pay. When I was paying my school loans off, I even paid off a 0% interest loan just so that I didn’t have to expend energy on paying that bill anymore.
  4. Because feeling poor motivates me to spend less money. There is no better way to do that than to empty my checking account to the bare bones at the end of every month.
  5. Because I like to live in my investment. Online brokerage accounts aren’t cozy.
  6. Because traditional savings rates stink right now and there’s no where else safe to put it.
  7. Because I probably should refinance to a lower interest rate but the payback time is too long.
  8. Because I can still itemize my taxes without a mortgage  interest deduction (due to charitable contributions+property taxes)
  9. Because I like the idea of reducing my fixed monthly expenses. Variable expenses are way cooler because you can slash them at will.  I have this crazy goal of eventually being in a position where I could live off a minimum wage job if I needed to. It’s definitely possible, but not with a lot of mortgage debt.
  10. If you have kids, your primary residence and equity does not count as an asset on your FAFSA federal financial aid application.

On paper, I’m sure there are calculations where the invest in the market approach wins, but for me it’s more about simplifying life than it is about earning that extra few bucks in the market.

Which camp are you in?

{ 9 comments… read them below or add one }

Financial Samurai August 4, 2010 at 4:08 AM

Love the reasons!

I’m in the camp of pay the mortgage off when you stop working, but keep your mortgage when you are working.

To me, it’s all about liquidity, and I don’t want to have al lmy money tied up in my house in case i lose my income stream.

It’s just accounting really!
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Financial Samurai August 4, 2010 at 4:09 AM

BTW, any way you can install a Tweetmeme plugin to help us help you share your articles?
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firstg6 August 4, 2010 at 10:47 AM

Thanks Sam. I love your blog btw. I think I installed the right plug in. I would love any advice you may have on useful plugins. I gave up on messing with my site for the time being and just want to write for a while.

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Nicole August 4, 2010 at 6:19 PM

Hee… w e recently posted one of our own early mortgage payment thingies on our blog. I came out in favor of diversification– do some of each. I always read the mortgage posts too… including the dozen some on get rich slowly. You did come up with some I hadn’t seen. You’re right that feeling cash strapped keeps you from overspending… I often hide money from myself (put it in a CD or online savings) so I don’t spend my emergency fund.

Great post!

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Budgeting in the Fun Stuff August 4, 2010 at 6:36 PM

I’m in the pay-it-off fast camp. My main reason is that I want to have complete freedom with my money…no debts. We still invest and have cash on hand as well, so there is a balance we have found, but I think the feeling of debt freedom in 6 1/2 years is going to be amazing…

PS In case you didn’t think about it this way, you could refinance and simply keep making the same payments and extra payments that you make now. If the closing costs of refinancing cost less then the total amount you’ll save, it may be something you’d like to do.

For example, we have a $740 a month mortgage at 5.375% a year for 15 years, but we pay $900 a month. If we refinanced to a 4.35% rate for $2700, we’d have a lower payment, but if we continued to pay $900 a month it would knock off 3-4 months more than we are currently on schedule for…that’s $2700-$3600 of savings which doesn’t really justify the $2700 in closing costs.

Sorry if you already knew all of that…feel free to ignore me when necessary, lol. :-)

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Sandy L August 4, 2010 at 7:15 PM

BFS, we actually can see the light at the end of the tunnel, so the cost of refinancing will exceed the interest saved til payoff time. We’ve also done 401K from day 1 and still do, but I never actually counted that as real money. I’m like Nicole and like to hide money from myself. Liquid, accessible money never lasts in our house.

6.5 years will fly by. I can’t believe we’ve been in my house for 10 already.

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Budgeting in the Fun Stuff August 4, 2010 at 7:24 PM

Glad you are so close! Time does fly…it feels like we’ve loved our house forever, but it still surprises us that it’s already been more than 3 years. It feels like we went through all of that home-buying stress yesterday…

I try to ignore our 401(k) and Roth IRA too…we don’t spend a lot, but I also don’t want to get too excited about money we can’t touch for another 30 years. :-)

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Executioner August 23, 2010 at 4:28 PM

Pay it off as quickly as possible — once all other higher-interest debts are gone and a reasonable emergency fund is in place.

I can understand the sense in contributing to a 401k (especially for the company match) and/or IRA first, and then using any reserve funds to attack the mortgage.

But I am avoiding investing (outside of long-term retirement accounts) until after the mortgage is gone. It makes no sense to me to have money tied up in CDs, etc when the mortgage debt is still hanging around (assuming the CD rates are lower than the mortgage rate — which should always be the case).

Mortgage prepayment is a form of insurance against future diminished cash flow. It would be much easier to weather a job loss, decreased investment income, etc if there is not a large mortgage payment due each month. Plus, eliminating mortgage debt is a key component of early retirement.

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Laura@MoveToPortugal September 12, 2010 at 8:55 AM

I’m firmly in the payoff camp; I can’t imagine anything better than being mortgage free!

Great blog btw :-)

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