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January 10, 2008

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I guess we have the benefit of hindsight to tell us we were in a period of extraordinary growth over the past 20 years and that time period would lead us to believe this is a normal assumption looking ahead 30 years.

However, attitudes towards debt are changing now while our gov't is adding debt like gangbusters. Ironically, the debt the gov't adds today to 'save' our financial system will with certainty be a drag on future growth as we have to pay interest on this massive debt. Look at Japan in the late '80's, the gov't did the same thing and the next 20 years that followed was nearly zero growth.

So the nice thing about paying off the mortgage in advance is the security of being debt free regardless of what assumptions there are on future investment growth.

Of course paying off the mortgage is bad for people who would prefer to be under water and then stop paying the bank and live rent free for 2 years until the bank finally evicts them... can save money in the short term this way for sure but I'm certain it is very stressful.

-Mike

We need a software or Excel that shows exactly what you just said. Shows you how many payments you've eliminated and how soon you'll pay it off. Time to get to scripting. I have a $6000 student loan. I've been making great strides. So I won't notice anything noticeable. Minimum payment was $150. It's down to $87 now since I usally pay $500 toward it.

Buying a home I could afford has made life a lot easier in the current downturn. While I was not as aggressive as your 60% - more like 80%, it has made a big difference in not being weighed down by a huge monthly payment (relative to income). Some of my friends really stretched for the biggest house - and now they too poor to eat out often or buy a cool tech toy.

As I like to say: "If you're good at the big stuff you can be less strict on the small stuff."

My wife and I just paid off our mortgage 4 months ago. Im 40 yrs old. This is a great story and tracks very similiar to my debt hater mentality. I often wondered if paying it off or investing in something else was a good idea. Im still not sure thats why I found this site while surfing the web. I will say the last 4 months in this economy and shakey job market has given me great comfort. My emergency fund does not need to be so large and I reinvest my old mortgage payment now fully into other money making investments. I calculated based on our monthly budget I can live on unemployment fully although very tight without touching my EF for the extent of unemployment.

For you doubters, Would you maybe want to make 10-12-20 % in the market possibly but also 8% or even 4% in the end. Or insulate or at least ease yourself from worry of making the monthly nut? I opted for the latter? Im probably ignorantly happy with my decision. Unfortunetatly If you dont know the market or follow it closley you can loose your shirt. And the professionals shrug there shoulders and tell stories of the volatility in the market as your hard earned money evaporates. Cynical but a harsh reality. At least youll have a place to live, most likely your taxes each year are still much cheaper than a rent in most places in the country.

I guess I am really blessed to pay my second house off in my lifetime, and I am only 38! My 1st house we bought over ten years ago and paid it off within 4 years. I rented that house out for a year and had enough for a very sizable down payment for my current house, which is a rather large house coming in at 6 beds 4 baths. I was putting that rent money towards the mortgage of the new house for about a year. Once the old house was sold and got the check, I took that money as well as money I had locked into a CD that was up and paid my current house off. So it took me 1 year to be mortgage free again. My wife and I have been very conservative, but I do have some stocks (Which were bonuses, so it's money I never realized and not worth that much anymore), 2 Roth IRA's we contribute to every year, 401K's as well as a nice nest egg in cash that I search for the highest rates on the internet for. So we are now banking the money that we are saving from the mortgage and then some instead of spending more. We live very frugally but splurge once in a while. And to add to this we have bought 2 new cars in the past 7 years one of them being last year, and we paid cash for those as well. So we have no debts what so ever. We only use 1 credit card and pay that off every month. So we are paying interest to no one. When the interest rates go down, it actually hurts us saving wise! I feel very fortunate to be so young in the position that I am by the choices my wife and I have made through out the years. Slow and steady wins the race.

I am in the process of paying off my house. I just refinanced to a 15 year mortgage and I am going to be paying extra every month. I am still going to be fully investing in my 401k, IRA, etc... but I can put the extra $300-500 a month on principal. I like seeing how each month more and more $ goes to principal. I just can't wait for the day when I write the last check. It will take a while but I am making this a priority and 1 day the mortgage will be off my back.

Right now my husband and I rent out a condo and yield a monthly profit of $430 (not including the principal payment). But lately I'm wondering if it would be better to sell the condo and pay off our home mortgage. I am 30 years old, and my husband is 31. We currently contribute to our 401Ks and have an emergency fund in case something happens. Any thoughts?

Elizabeth - I think this is a intersting and great question. Im not a finacial wizard but I can only pose questions for questions. The condo you are renting is it in a really good complex that will be maintained? with good ammeneties (pool, club house and other things). My point being Ive seen condos and then there are condos that are older but still a great community. If you have the nice community type, it would be worth considering keeping it for the added income and just reinvesting profits to pay down your house. If your in the paved lot small condo complex, I would lean toward dumping it. Those at least in my area seem to go down hill faster and the small community cant keep up the maintenance and common charge and assements kill the profit making aspects.

Just an opinion from personal experience for consideration.

Elizabeth - I think this is a intersting and great question. Im not a finacial wizard but I can only pose questions for questions. The condo you are renting is it in a really good complex that will be maintained? with good ammeneties (pool, club house and other things). My point being Ive seen condos and then there are condos that are older but still a great community. If you have the nice community type, it would be worth considering keeping it for the added income and just reinvesting profits to pay down your house. If your in the paved lot small condo complex, I would lean toward dumping it. Those at least in my area seem to go down hill faster and the small community cant keep up the maintenance and common charge and assements kill the profit making aspects.

Just an opinion from personal experience for consideration.

We paid off our mortgage in 4 years, about 10 years ago. While it's nice to not have a mortgage payment, I became accutely aware of the fact that we never really own our home, unless property taxes are done away with. There will always be a financial obligation to a home, aside from normal upkeep. As a matter of fact, our property insurance and taxes are now more than our original mortgage payment was (which had insurance and taxes escrowed).

very intersting debate going on here, and i really do think its a personal thing. i hate debt, as im sure most on here do as well, and i know i will be paying of my mortgage as fast as possible once i get my first home. its not because of the finances, but its because i know i will live better and less stressed without a monthly mortgage payment. things happen, and havnig no income is terrible, but it can ruin your life if you have no income and a mortage to pay for!

defintiely always buy what you can afford, reaching and assuming your salary will go up in teh future is a huge mistake, and many americans have paid for it over the past few years.

Preferred Financial Services

I think one of the earlier posters said it best when she said, paying down the mortgage is a way to balance your portfolio.

My family is already saving 20% of our income in the stock market and have been since we got out of college. When the market crashed, I realized we were way too heavily weighted in the stock market vs a more balanced approach of stocks and a mix of more conservative investments.

For me, the conservative portion is mortgage payoff. It's a guaranteed rate of return and it's a TANGIBLE asset. Even if your house loses 50% of it's value, you can still live in it.

My property taxes and charitable contributions alone are enough to itemize my deductions. If you're worried about losing the ability to itemize, give more to charity until you hit the itemization threshold. I certainly prefer giving my money to the Red Cross vs Wells Fargo.

Part of my emergency strategy aside from having an emergency fund is to reduce my overall annual expenses. If the worst case happens, I can work minimum wage and still pay expenses. Also, if there is a complete economic meltdown and money becomes worthless, at least with a paid off home, you have options. You can grow food in your yard, you can rent parts of your house out, you can run a business in it. Tangible assets have their perks.

Love the posts and just wanted to comment on something that no one has posted on.

First, I am 33 and working along with my wife to pay off our mortgage next year. We started this a year ago and we put almost all free cash into the mortgage after fully funding our Roth IRA's and 401k's. The beauty of paying off the house, is it will allow my wife to stay at home with the kids and we won't have to worry about making a mortgage payment. This essentially allows us to maintain the same lifestyle we have had with her working, and still allow us to comfortably afford private education for our kids and keeping up with retirement contributions that have us on track to retire at 55.

I agree with a lot that is said and you can make an argument for both paying off you mortgage or investing, but what about diversification??? All of us are probably already heavily leveraged in stocks, bonds, etc. In our retirement portfolios, so paying off your house is a safe known investment that will complement your net worth portfolio. If you don't pay off your house and invest that money in stocks, you aren't getting as balanced of an investment.

The other thing is that houses aren't the most liquid assets, but neither are most stocks when the economy is down and you don't want to sell at a loss. I feel much better knowing that I don't have to make a mortgage payment than be forced to sell stocks at a loss to cover a mortgage payment when times get tough.

I haven't yet paid off my mortgage but i am working on it. I have no car payments, no credit card payments and 75% of the money that was going to those bills are now going to my mortgage, the other 25% i am socking away in case of emergency. At this rate I estimate my house to be paid in full in 5 - 6 years. My ex-brother in law told me that paying off my mortgage early was a mistake. He worked in the stock market. To make a long story short, after he got creamed in the market and borrowed from his mom and both his sisters guess whos door he came knocking on for a loan. True story. My wife and i feel great we can see the light at the end of the tunnel and cant wait for the day of final payment. Congrats to those who have already made it and good luck to those working towards it.

I envy those of you living mortgage free. I hope to join your ranks in about seven years time. I would love to sooner, but I have TWO houses to pay off (one purchased for an elderly couple who needed a roof over their heads).

The one thing that I noticed on my journey to become mortgage free is a change in my attitude about spending money. The determination to get mortgage free is a strong driver to spend less and spend smarter…well, at least, it is for me.

I have been told I am not entirely smart for putting all this energy into getting mortgage free, that my money is more valuable invested, that tax benefits would be lost, etc, etc. But I see things a little differently. If my goal was to save to invest v/s pay off debt, how will my attitude about spending money be different? I’m pretty sure I would spend more than 10% EXTRA a year on luxury items and frivolous things simply for having a larger stock portfolio and/or savings account. That to me is like LOSING 10% of my money, just by attitude alone. Might be higher than 10% – Tiffany & Co. has some nice things…

I think those of us determined to get mortgage free is MORE driven to spend wisely. Saving money becomes necessary…it’s a “have to” rather than “want to”.

And to illustrate my point – my coworkers (the ones to point out my lack of financial savvy – and they can get pretty brutal) who make about the same money as I do, drive luxury cars, wear designer label clothing, carry expensive purses and pay more than they need to for services. I’m pretty sure I will be ahead financially (by MILES) in 7 years’ time AND my monthly living expenses will be next to nothing since I will be mortgage free!

I think the number one reason to pay a house off...

The feeling or experiences (for once on your life) to be "un-plugged" from the over dramatized media on economic, and political housing news which cause people to panic over nothing.

Also, with a house paid off, you don't need to be at the mercy of people who make boardroom decisions on whether your job becomes targeted for a layoff.

The impact of losing your job, becomes "a no-big-deal" moment, because you have the satisfaction of knowing, the only risk, fall truly on your employer, and not at the jeopardy of your house.

For me, the American Dream is not (and I repeat...) is not having the bank be your mortgage-holders. The American Dream, is the spirit and ideas of owning your home free and clear within a neighborhood you love, and improve. This is the best investment for our economy, because it's a ROCK SOLID move which strengthens our values, and betters our neighborhoods IMHO.

If you find the right home, "buy it out-right" and make it an even better place.

Nice post FMF. As you stated, the debate between whether or not paying off your mortgage early or not is a good idea can be debated for days....Either way, congrats on this and I know you must be feeling so relieved and debt-free for many years! I currently own a home (which is being rented out as a corporate rental on a 2 year lease) and also rent a condo in a different state, due to a job relocation.

I like all the different perspectives. We paid our mortgage off about a year and a half ago. A driver was the economy at the time and the fact we actually had the money. Since then I still pay my mortgage payment but now to myself into savings and various other "safer" investments(if there is such a thing anymore). Since the mortgage, both my wife and I had some "close calls" we thought regarding our employment. We ended up fine but during those tense moments, losing the house was not a concern. It was more about job/career aspirations. Where would I go? What would I do? Am I still marketable?


I would recommend paying it off but really its a personal choice. It seems some people view it as losing money that could have been gained in the market and others look at as a fail-safe in case of job or life circumstance change. I look at it both ways but still ponder about the decision. We put out a lot of money to pay it off but now We are in a position to retake the mortgage payment We had and redirect it into other investments(savings, stock, mutual funds). or HEY just have some fun...;-) Its nice having options. Gee. What should we do with this months mortgage payment to ourselves? Its rough....

The one recommendation(if you payoff), is review the taxes taken out of your paycheck. The tax refunds you received from Uncle Sam in the past will probably be smaller or you may have the privilege of paying.

Life without a mortgage means that you have more freedom to spend money on other items that you want. You will have alot less stress and feel better about yourself.

Isn't hindsight grand! This has been an instructive exercise--reading the many pros and the one con about paying off a mortgage early --all written prior to the economic debacle. Noting that I have no social security, since I teach at a public university, and my alternate retirement plan now has only about $50K total in it due to the market collapse, I am pleased that I did not follow the "con's" advice; Wall Street is way too risky for me. However, eleven years ago my mortgage was nearly paid off, but I purchased the house next to my sister's house in Canada by remortgaging my US house when the Canadian dollar was worth much less than the US dollar (a 90K CAD house with 60 acres on the river could be bought for 65K USD). Eleven years later, the Canadian dollar is nearly the same as the US, actually slightly higher and my mortgage on my US house is nearly paid off. Recently, I've put the house in Canada on the market and had a cash offer for more than three times the original price. Sure, I've put money into the Canada house (nearly 100 CAD), paid taxes and insurance on it(about 33k CAD) , but I've also been able to enjoy it every summer and use it as a savings tool.. Wall Street seems to me to be the trickle up engine; I do not want to make the rich richer at my expense. I rarely make purchases for things that will end up on garage sale tables or need to be hauled to the curb. I live modestly, but have what I need--no Coach Bags or other branding items. I have an ancestor who was the famed "Witch of Wall Street--Heidi Howland Green." The rich have better ways to make money, but we can all raise our salaries if we stop buying consumer junk. However, what do we do about our children's student loans? My daughter got a graduate degree at Oxford in linguistics and has a high 8% interest loan on 55K. Should I remortgage to help her? Sell Canada and give her cash? Be the bank and give her a low interest loan when the Canada house sells?

Sandra,
Your post is interesting since it goes across at least 2 points. The first the financial aspect. The second a personal aspect around helping children out of debt. So, some of this is personal choice and knowing your daughter.

Oxford university, obviously she has some brain power and I would assume responsibility to go with the brains. So, I assume she is a model child.

Based on the details you posted. $50K isn't that much in retirement but I assume the university has some sort of pension? This is an assumption so hard to say since not mentioned.

Loans and family don't always work out at least according to any TV hosts or blogs Ive read but you and your daughter may be the exception. this is your call....obviously.

Assuming you cant refinance the $55k student loan from 8% to lower rate student loan. the remortgage idea is an interesting idea since the rates are very low and have options in the duration of the loan to make it reasonable. That said, giving the proceeds from the Canada house gives the option of a clean break and lends itself to the family loan option with no risk.

Based on the data you provided and this pension you might have + 50K, your time to retirement assuming your on track for your age. I would use the Canada house proceeds and put a payment schedule together for my daughter. Plus cuts down on paperwork I assume which may have fees to process.

For me it depends on how close you are to retirement. If your close and under funded that would have a high weight which option to go. There are hybrid options as well maybe pay half and wish luck and give support if needed. One thing is do you really want to take this loan over from her in total which means its your burden and not hers.
My 2 cents. no answer but maybe provokes a different line of thought.....

It is interesting to read the first comments in response to this post way back in 2008. The take home value for me is this:
(1) Paying off the mortgage is a guaranteed return on the interest rate you were paying on your mortgage. It may not be sexy, and it's true you may not completely maximize your total earnings on your money versus investing it. However, it is guaranteed. And that means a lot to a lot of people.
(2) I still have yet to encounter any person that expressed regret paying off their mortgage.
(3) Some comments went on and on about how much their investments would return. 8%, 10%, 12%....I'm curious how June of 2008 through February of 2009 was for them.
(4) Other comments were made touting the ability to keep money invested safely in CD's at 5%. Good luck with all that. Many people would jump for joy if they could get back to 2%.
(5) Finally, my general sense is those arguing against paying off their mortgage aren't being completely honest. Do you really think they are faithfully setting aside money, saving it separately and identifying it as their "mortgage payoff fund?" Sure, there may be a few that do it, but I think most don't.
(5b) One other item - the people I know that have had the discipline to pay off their mortgages also have displayed similar tenacity in saving and investing for retirement outside the mortgage issue....funny how that works, huh?
(6) It's a free country and all, but I'm always amused to hear someone try to talk another person out of paying off their mortgage. I suspect some of the reasoning is envy. People saddled with debt and large mortgages are often comforted by the fact that everyone else around them is in the same boat. They don't want to know that their next door neighbors have zero mortgage. I say the next time someone identifies they are paying off or have paid off their mortgage, (1) congratulate them, and then (2) ask them how they did it. You might learn something....

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