Monday, March 03, 2008

Pay off mortgage early?

I get the emails from Debt Into Wealth, and I must admit, it sounds awfully tempting not to have a mortgage. However, we've decided instead to have a savings plan and continue paying our mortgage at the regular rate, and here are some of the reasons:
  • We want to build up savings to the recommended three to six months worth of expenses. If my husband lost his job , savings and investments will help a lot more than a lower mortgage balance.
  • We want to save money to make a down payment on a new car when one is needed.
  • Although I'm not sure about this, I think having a mortgage may result in more financial aid when the boys go to college. Even if we paid an extra 1K a month (ouch!), we wouldn't pay off the mortgage for another eleven years, which is about the time our first will be heading off to college. My guess is his college would be happy to help us out with that sudden extra cash flow.
We've set up a plan with ShareBuilder where we invest regularly each month, some in the stock market, and some in a money market account. I really like having the money taken out automatically -- much less temptation to spend it instead of saving it each month. Yet if we need it, it's there and available to us.

We don't have credit card debt to pay off, and rollup into the next debt. But we will use future raises to increase our ShareBuilder allotment, and when we pay off our HELOC, we'll increase our savings amount by that figure (as we did recently with our car payment).

If we didn't have an automatic savings plan, or our weren't disciplined enough to use it, paying off the mortgage might work -- but I think it's a big risk to put extra money into a mortgage without an emergency savings stash.

There are a lot of articles on both sides of this argument -- I like this one:

1 comment:

Gmac Home Loans said...

Behind the argument for not paying off your mortgage is the reasoning that you could invest the extra money
and earn a higher return, while keeping your money more liquid. That may have been a good reason in the past but the rate of return on investing now is more questionable, compared to the fact that every dollar paid
to reduce a mortgage balance provides a guaranteed return equal to the interest rate on the mortgage.