Everyone is wired differently and what makes since on paper is hardly ever the outcome . We paid our mortgage off last year and haven’t even bothered to calculate the difference if we were invested. Once it’s paid off I’ll put more into my taxable accounts and/or start making backdoor Roth contributions (which will be easy for my wife but difficult for me due to other IRA accounts). Nice to be with great company. “We paid off our mortgage early. Cutting about 12k of annual expenses (still considering taxes, maintenance and insurance) is huge! Why Paying Off My Mortgage Is A Mistake I Don't Regret - Mustard Seed Money, The asset allocation in question from The Physician Philosopher, Profitable Ideas: IRS Red Flags, One Money Mistake You’ll Never Regret, and More | Matt About Money. We refinanced to a 15 year loan a couple years ago and the benefits are really starting to show. I had fun doing the podcast with you as well . Extra payments were made toward principal to accelerate the pay down. Unfortunately I had to make a decision, which meant for me paying off the mortgage first. Started today see how it goes and when will I get to see the balance drop. It’s definitely something that has helped our family . Many homeowners are in their home for several years before the idea of paying off the mortgage balance comes to mind. And keep going from there. We started with a significantly negative portfolio do to school loans and only made monthly payments for years while maximizing our pre tax accounts and investing the rest in taxable. Some of these lenders also offer loans for other high income professionals such as dentists, veterinarians, attorneys, podiatrists, optometrists, accountants, and others. Sounds like you are very comfortable with the debt you carry and have a great plan in place. Before I was in the same place because I felt safe. - Money Saved Is Money Earned, Spending All Your Savings on a House - Partners in Fire, Types of Real Estate Investing: Which is Right For You? Also gain some understanding of the pros and cons of paying off a mortgage earlier, or explore many other calculators covering math, fitness, health, and more. Mortgage rates are usually higher than savings rates, so if you have a lump sum in a savings account, you will receive less in interest each month than you would save from paying off that amount of … If you’re thinking about taking on a few roommates, especially if they are all men, I’d encourage you to contract a regular cleaning service. Having read all the arguments against paying off a mortgage, I just considered it a bond equivalent and did it. Even though the comparison of rates seems simple and conclusive, there are several other factors to take into consideration. I also factor in the peace of mind of never having to worry about a mortgage payment again. Thanks for sharing Mike!!! We will pay off our mortgage this year. I love hearing the other side of the coin. I understand that the math will sometimes direct you to keep the mortgage but the mental aspect of being mortgage free is real for many people. The individuals listed below offer physician mortgage loans for these lenders and are paid advertisers on the blog. Special treatment for the student loans (usually that they only take required payments into consideration). Why? If I paid off my mortgage early, I would be saving about $20,000 in annual mortgage payments. I’d like to avoid mortgages if we can . I’m not saying you paying off your mortgage early is the wrong decision. In essence, a $300,000 home costs more than $500,000 when viewed this way. Both of which emphasize sound financial education and advice. In my pre FIRE aware period, I wanted to pay off as fast as possible and threw bonus money at the mortgage. So in 2004, a little over a year after I graduated from college, I bought my first home at the age of 23. It makes more sense if you read the linked post and my explanation there, I promise. Retrospectively not paying off the mortgage has been an amazing decision for our financial well being. Interestingly I wrote a similar article considering different scenarios. Hahaha…that’s the attitude I like to hear!!! I wish I had made enough money to fully fund all those first. Especially if income is increasing annually. Similarly if a person is in a volatile job industry then being debt free may be the right risk adjusted decision. Paying off the mortgage early is an important financial goal. We are just skipping our after tax savings for now though we already have a decent 150kish in there earning some dividends…. What now?” By Helen Racanelli on September 2, 2020. We lived there a few more years, then when we moved to Michigan, we sold the house and paid cash for our new one. However, struggling to come up with the funds to pay off a mortgage balance can be more stressful than it is worth, especially when trying to find the dollars for retirement accounts or reducing high-interest rate debts. In one sense, I would essentially gain built-in friends to hang out with. Interesting article and I really liked the comparison of returns. If you're looking to pay off your mortgage early, you have a couple of options to consider. I have always hated debt, so I wanted the shortest loan possible that I could afford. Do you think that you would have invested the difference had you chosen the 30 yr mortgage? I get the math behind not paying down the mortgage faster if your locked-in rate is below a threshold. If you pay it off in 6 years (average of 5 – 7 years) that’s $1200 per month with a total interest payment of $87229. Plus the fed is talking about raising rates more this year. Thanks Erik!!! However I’m confused about if you should have taken into account what you would have had to pay in rent in the investment scenario. That’s a great financial habit – don’t stop now! I have been happy to use debt for my real estate investments however. Thanks for sharing GXA!!! Contact: Stephanie Arcelay (NMLS# 897166) at 615-484-6690 or firstname.lastname@example.org, AZ, CO, IL, KS, MO, NE, OK, TX I saw first-hand all of the ways that debt hindered them, all because of a decision that they made at 18. This is why I am still an avid proponent for paying off your mortgage early. What could go wrong? If you get sometime please give it a read. I’ll back into it this weekend. But I have found that you don’t notice a gradual change and have applied that. Love f – fund ideal, does make a nice difference at work, and maxing the 403 funds etc is likely a good idea, however how much fin aid for ( I am assuming your kids ) a physician kid is really going to receive is likely to be low. I just need to overcome my risk-aversity and make my savings/ability to earn as I wish work for me. That seems reasonable. Contact: Lance Johnson (NMLS #93035) at 704-770-3644 Office or 704-975-3033 Cell or email@example.com, FL, GA Notify me of followup comments via e-mail. Payoff Your Mortgage Early On the other hand the last 8 years of a raging bull and the extra money I had riding that bull has put my net worth in a very comfortable spot. Pay off your mortgage early with these personal finance tips. We bought a home putting 20% down. Looking back, I would have liked to have saved more but I really do not have any regrets. Personal finance is personal for a reason. Great post! I bought a multiplex and paid off the mortgage very quickly. Rob of Mustard Seed Money is an accountant for the federal government with a passion for all things personal finance. Trying to be aggressive, I selected a 15-year mortgage in order to lower the interest rate to 3.5%. That recognition is not the only thing we have in common. Physicians, Pharmacists, and other healthcare professionals are invited to join Incrowd today! Historically, the stock market has yielded greater returns over time compared to the historic lows of mortgage rates. Tom, Hahaha…I know of our mutual disdain for debt . Wow your home increased by 6x is incredible. Let’s explore what would have happened if I had invested that money into the stock market instead of paying off my home. I’m dating myself a little with that information! I think you don’t have to over extend yourself personal finance is a balancing act with your priorities. Thanks for the read!!! taxes on a brokerage account v taxes on a mortgage, it’s not too hard to streamline a brokerage acct for tax efficiency. Based on our example mortgage numbers above, you’ll pay your mortgage off a year early, saving over $7,000 … You’ve seen the power of a working to a simple financial plan in a steady way over time. $1,214 ÷ 4 = $303.50 If you want to pay off your mortgage early, choose either accelerated bi-weekly or accelerated weekly. I too am debt averse and love reading (relatively) contrarian ideas like this. That is a big deal. More importantly, no longer having debt allowed me to relax at work. FL, GA, MD, NC, SC, TN, VA, WI, WV I didn’t know I had a monkey on my back. Plus, I had plans to make extra payments each month to pay it off more quickly. Personal finance is personal for a reason Like you paying off my mortgage early felt like the right move and I’m glad that I did it in hindsight. [PoF: If I was still carrying a mortgage, I’d probably celebrate the arbitrage of carrying tax-advantaged low-interest debt while investing in index funds with a higher projected return. Many financial advisors promote investing money in the stock market instead of paying off your mortgage. Hahaha…in hindsight I kinda wish I didn’t know the official figure. Interest rates have dropped to record lows. But I hate it when people in the finance community advocate being debt free because of the emotional feel of it. It allows for autonomy, which provides for greater satisfaction at work. Removing a mortgage payment from the financial picture means more money to live on each month, making it a sound financial decision in most cases. Paying off the mortgage early is a great medium-term goal, something achievable within 10-20 years (or even earlier if you’re really aggressive). Soooo……the effective rate I’m paying is only 1.20%. It sounds like buying a home right after graduation has worked for you on a number of levels. Adjustable-rate mortgages typically provide a lower interest rate initially, but over time, the interest rate may adjust upward. Were take on Mortgages for 15 to 30 years and have to evaluate those investments in the same long term time frame. Now that my kids are older and my income is higher, I wish we’d completely maxed out our retirement accounts (back when we were both government employees we had required retirement plus 403b plus 457 options and for some of that time the ability to backdoor Roth) first because now that DH no longer has a 457 or required saving we have money leftover each month that we can’t hide from college financial aid by putting it in retirement or paying down the mortgage. Contact: David Henderson – loan consultant (NMLS#1183120) at 916-549-9916 or DavidHenderson@loandepot.com. But haven’t pursued it. It’s a great feeling to pay off a mortgage loan, and it’s also great to get the mortgage you need at the best rate possible when first starting out. Back in the ’80’s I would buy run down homes for rehabbing. I know the feeling. Refinance … Hi VagabondMD! (Another partner advised me that $4M was needed to retire, and I made this another goal.). Paying a $400,000 mortgage off in 10 years instead of 30 will save you $400,877 in interest. In my case things worked out. Though my brain says don’t do it. That is already higher than any of my debt. But even if I didn’t invest but rather, put it into a standard savings account, just having peace of mind at my mortgage being paid would be worth it. I will work 3 days and rest of the days pursue things I enjoy like being a trainer or work couple hours at the gym. I am doing the same thing with my student loans, since I don’t have a house yet. Thanks for stopping by!!! I love hearing views that opposite side of the coin I wish I had the risk tolerance for debt. Wild that you were able to get a significant loan amount at such a young age. By paying your mortgage off early, if your interest rate on your mortgage is 4.4%, you receive a 4.4% (risk-free rate of return (see table below)), 1.42% over … Thanks for sharing Happy Philosopher!!! We constantly talk about taking emotion out of investing. I just paid off my mortgage for a home a bought in 2009. at age 22. sense. 5 Sep 2017 #1 We are in a position to pay the outstanding balance of 30 K on our mortgage. I understand that some mortgage companies, for a fee, are willing to recast a mortgage that was being payed down aggressively but not fully paid off. Given your numbers and to pay off your loan in 13.5 years (average of 12 – 15 years), you monthly payment are about $6025. I don’t think we are in a hurry to pay it off but the goal of reaching retirement with no consumer debt is huge. I see you comment quite a bit on PoF and WCI and I’m wondering when you’re going to start a blog of your own. I think paying off a mortgage is great, especially for early retirees as it is a form of deleveraging. For whatever reason I have a hard time with debt. Given your numbers, to pay off your loan in 13.5 years (average of 12 – 15 years), your monthly payments are about $6,025. If I ever had to pay the mortgage, I’d just get some money out of the 6% account, the point being I had the money so I had the security, plus I had another 3% growth beyond the security. I think it’s preferable. Homeownership can often mean we’re putting down roots that can make it tough to leave and pursue other opportunities. Regrdless, this was a fine article. Get hot tips, exclusive deals and the latest news sent directly to you. I have an amount equal to my mortgage payoff in a high savings savings earning 1.60%. Not having to make a monthly mortgage payment is wonderful and something I don’t regret. The interest rate being so low has not made much sense to do it. Unless your interest rate is over 10%, which we haven’t seen since the 1980s, it would make sense to invest in the stock market. While I may not have come out ahead when you solely compare paying my mortgage off versus investing the stock market, I believe I came out ahead when you factor in my salary increase and bonuses that I received. You are absolutely right. Neither of us won the Plutus Award, but the nomination alone was an honor. I couldn’t agree more. That’s awesome to hear!!! I was officially free to make life decisions without worrying about how to account for ~$1000/month. I’ll definitely have to check it out. In my opinion, this is one of the biggest benefits of being financially independent. We started with a 30 year and went to a 15 with our first refinance and never went back. We are just starting to throw a little bit extra at the mortgage. Incremental increases towards your mortgage is a great way to pay things off. For us, paying off the mortgage makes perfect (emotional?) Basics of Paying Off a Mortgage Early. If I pay $1510 this month $1520 the next will I really notice ? We refinanced several times to obtain lower interest rates as they fell. Great story, Rob. Having a mortgage payment in retirement would significantly increase the size of nest egg to draw from, and consequently, delay that start of early retirement. How much you pay should consider that tolerance in some way. But I’m glad that I do so that I have a frame of reference to share with others . The reasons range from the psychological pressure of being indebted to slashing interest payments. But this strategy allowed me to come & go at will & be there to collect rents each week & there was always beer in the fridge. Super excited. If you have the will power to pay off your house, the chances are you will probably be fine financially in the long run . Credit Union of Denver (CO) offering HELOC with 2.99% Introductory APR for 12 Months, Old National Bank offering 1.74% Introductory APR on HELOC for 12 Months, SECU of Maryland offers HELOC with Low 2.49% Intro APR for 12 Months, Top 3 Home For Sale by Owner Websites in 2020, Home Equity Loan Options for Mobile Homes, Wells Fargo offering $500 My Mortgage Gift℠ Award with Union Plus Mortgage Program, Land Equity Loan Options for Vacant Landowners, VyStar Credit Union Offering Mortgage Loan with No Closing Costs. Is paying off the mortgage early a mistake? Paying off a mortgage balance early, either through additional payments throughout the years or as a lump sum after some of the balance is paid off, results in an interest saving for most homeowners. In fact, since 1928, the stock market has had an annualized return of almost 10%, including dividends. But I’m struggling to see the benefit of not paying down if your (the generic “your”) eventual goal is FIRE. Some homeowners are eager to get out of mortgage debt early. Before cutting a check for a mortgage loan balance, be sure to evaluate these factors to ensure you’re making the right decision for your circumstances. We are also an MD/JD couple, not too many of those around here. We focused on paying off that mortgage. That’s huge. There is very little risk in a mortgage, it is probably one of the least risky ‘debts’ one can have. Could not agree more. On face value, that would have been a higher compounded annual rate of return at 4.6% with dividends reinvested versus the 2.9% from paying off my mortgage early. No looking back! Great job! Another consideration in the mortgage payoff debate is the type of mortgage loan a homeowner has. I paid off my mortgage at age 31. I treat our mortgage as part of our bond allocation. For me the psychological benefits are worth it. I actually read an article the other day that said that your savings rate is much more important than your investment rate of return. The three main features you will see with most physician loans are: Are you interested in a physician mortgage loan? Owning a home often means building equity in a stable asset that appreciates in value over the long haul, and the equity accumulated in the home can be used for cost-effective borrowing in the future. It’s given me enough to consider just writing a check for the rest of the mortgage, which I might do at some point. Consider an average mortgage with a 4% interest rate, fixed for a 30-year period. It’s a mental burden to have a mortgage hovering and if our interest was anything above a 5% or god forbid the interest rates during the 70s and 80s, I would have chucked it so fast. I am not in any rush to pay it off at this time. While the interest on a 30-year mortgage is substantial, most consumers cannot afford to make extra payments or use available cash to pay off such a large balance all at once. So my household income is about $80,000 a year and just using $10,000 from that. Living next the Joneses doesn’t help either at times . Thanks A-non!!! Having a multiplex affords many options but most of all I love having my home paid off. – Wealth Newsletter Daily, Things to Consider Before Buying a House - The Female Professional. We are six years into a 15 year mortgage at 2.875%. Sounds like we have a similar mindset with debt I am so glad that I don’t have to worry about debt anymore and it’s one less thing to think about before I go to bed . Early Mortgage Payoff Calculator The following calculator makes it easy for homeowners to see how quickly they will pay off their house by making additional monthly payments on their loan. Now he has a few rental houses and he’s doing quite well. I paid cash. Thanks for the kind words!!! No car payments. Having the debt set up as business debt is I’m sure much easier to swallow Too bad AirBnb wasn’t around when I was paying off the mortgage…although I’m not sure there would have been much room in the inn , While we still have nine years left on our mortgage, I am so glad we got a 15-year mortgage. Our first mortgage rate was about 10%. With a rate of 2.5 %, 10 years left (15 year mortgage) and FI the ability to be debt free is appealing. From time to time I wonder how much further I would be along if I hadn’t but then I think about all the risk I’ve taken at work and why it was the right move for me . I’m right there with you. Free mortgage payoff calculator to evaluate options and schedules to pay off a mortgage earlier, such as extra monthly payments, a one-time extra payment, a bi-weekly payment, or simply paying back the mortgage altogether. Like you I think 10% returns over the next decade might be hard to match. Did you feel like that aspect helped or do you think you would have been diligent enough to have saved the extra each month and invest it? It was tough at first but became easier and easier as time went on. Over the life of a $300,000 loan, a homeowner would pay slightly more than $215,000 in interest payments, plus the original borrowed amount. , We’re expecting a snowstorm this weekend and those Hawaii pictures are making me wish I was anywhere but here right now . I don’t think anyone who pays off their mortgage will regret it. Now if one is so emotion driven that they need to be debt free to stay the course and to be happier then paying off a low interest rate mortgage is an appropriate decision. The arbitrage paid for a new retirement car one for me, and one for my wife which I stagger purchased about 3 years apart, so it was definitely worth doing. Thanks for the advice. If you’re worried you’ll spend any money you have left over, I’d work on a budget and read a few books on basic personal finance — much cheaper than buying whole life. Pay off your mortgage early by adding extra to your monthly payments. Paying off low interest rate debt is an emotional decision that for many is worth 100s of thousands of dollars. Thanks for sharing!!! My home has unfortunately has been stuck in a rut for the past couple of years since it’s a townhouse . It provided a huge stepping stone to buying other properties. Thanks for sharing!!! All You can pay off your mortgage faster and save on interest, even if you don’t eliminate the entire balance at once. Now I’m maxing everything out . I didn’t want this debt to limit me in the future. I was about going homeless but now i can pay my bills comfortably, they also help with credit repairs, bitcoins mining, Living debt free is a big deal.