After reading the post titled "Today is NOW" where I mention that one of our BIG goals is to pay off our mortgage in the next 5 years, a reader messaged me to ask why I would want to focus any extra income on paying off our mortgage rather than investing it. I can completely understand her reasoning - and that of many, maybe most financial advisers out there. **By the way, I am not a qualified financial adviser with any sort of financial qualification or degree, just someone who is sharing her thoughts on money and saving money based on life experience.** The usual thinking is if a mortgage's interest rate is lower than the average interest rate of any investments over the length of the mortgage, then just pay the normal monthly payments towards your mortgage, pay the usual 15% towards your pension/ retirement and invest the rest in stocks, ISAs or mutual funds (US) which would be earning at higher interest rate.
Mathematically, this makes sense. Wouldn't you want to earn more interest on any money you're saving/investing than throwing it at something that's earning a lower interest? Maybe... but not necessarily.
The first thought that came to mind when I read her message was security - I want to have my mortgage paid off so that we have a roof over our heads in the event that something truly bad happens in the economy - something beyond our control. If we paid off our mortgage and owned our house free and clear, at least we wouldn't be homeless. There is risk involved with not paying off our mortgage. Also I am more motivated to paying down debt - I'm quite angry with it to be perfectly honest! - then to put the same amount of money into investments for the time being. When I consider how much interest we're paying to keep our mortgage, it makes me go crazy.
The second thing that comes to mind is the ability to "live and give like no one else, " as Dave Ramsey says. A big part of my money-saving mindset is to despise debt, because "the borrower is slave to the lender" and prevents me from being able to do what I want to and to give like I'd like to. You are a subservient to someone you owe money to; a portion of the payment we receive for the work we do goes to someone else to pay off the debt you owe. I'd much rather keep it for myself, not having to pay the lender, and be able to choose what I do with it, including giving it away when and to whom I want. I hear so many people say that they wish they could give more to this or that person or charity but aren't able to... hmm... why is that?!
You may be wondering what our plan is for paying off our mortgage early.
We follow Dave Ramsey's Baby Steps and are in Baby Steps 4, 5 and 6, which are to be done simultaneously. So, yes, we save 15% of our pre-tax income into retirement funds, we save for our children's university (or living costs while they're in university) and we are now taking steps to repay our mortgage early. My husband and I believe this is sound advice for our family, but please do your research before you make any decision for yourself. Take care, Lauren xo
What are your thoughts about paying off your mortgage early versus investing? Please leave a comment below.