One of the most controversial subjects around the family finances is the decision to payoff the mortgage early. Some say you should keep the mortgage around as long as possible, citing low interest rates and tax deductions as opportunities you are giving up by paying it off early. Others enjoy the freedom that comes from no mortgage payment, and the huge amounts of disposable, monthly cash that comes along with being mortgage-debt free.
Life Without a Mortgage
Can you afford your mortage? I don’t mean can you afford your mortgage payment, I mean can you afford to even have a mortgage considering all you’re giving up to finance a home? Mortgages are sort of a necessary evil nowadays, mostly because real estate is too expensive for the average person to pay for a house with cash, but in some cases because people buy more home than they can really afford. In many cases people could nearly pay for a home in cash, or at least put 50% down, if they would settle for a smaller place. Of course, some in extreme real estate markets would argue even this plan is impossible with modest homes starting in the $400,000 range. I would agree.
Still, it is hard not to enjoy the idea of not owing anyone any money. Imagine the freedom that comes with being debt free, including the house and all credit cards. Let’s say for example that you are in your late 40′s, and your kid(s) are wrapping up college. Instead of carrying out that thirty-year mortgage to the full term you worked to pay it off in twenty years. Now you own a $200,000 paid-for home, and have no other debts. And if you really liked having a house payment, you could always refinance your mortgage.
At this stage in your life, could you seriously consider an early retirement? Would a career change, or relocation now seem plausible? Of course! With no payments you simply have to earn enough to cover your basic needs such as food, lights, insurance, etc. And assuming you had adequate savings there is nothing stopping you from going after the career you’ve always wanted, but could never afford.
But Couldn’t I Earn More in the Markets?
Maybe. At the time of this writing the markets are doing so hot, so passing on extra mortgage payments to invest in a flat (or declining) market doesn’t yield the kind of returns you might expect in a bull market. The flip side to that is that when markets are in a decline it is a good time to stock up on beaten up companies with solid fundamentals, so setting aside some money to invest does makes sense.
I try to look at things through a short-term-pain, long-term-gain filter. I may have to miss out on a few hot investments now, but down the road I’ll be able to make huge contributions to retirement funds and taxable savings vehicles if I have no debt payments. I’ll also be free to make more decisions about how to spend the remainder of my life energy, rather than continuing to work in a passionless career just to make a house payment.