Why We Aren’t Paying Off the Mortgage Too Early

Mortgage payoffAfter paying off our credit cards, we needed a new debt goal to focus on. When you pay off a bunch of debt, it makes you feel like you can do anything, so we set out to pay off our mortgage early. The idea of living in a completely paid for home is super appealing, however, after looking at 2013 and beyond, we’ve decided that maybe putting all our energy into the mortgage payoff is not the best use of our money. Yep, we’ve flip flopped like a politician, and here’s why.

It makes more sense to invest in my solo 401k

After selling my practice, I set up a solo 401k through Vanguard. The costs are very low, and the interest over time should be much greater than the guaranteed 3.25% (current mortgage rate) we’ll get from paying off our mortgage.

It will also save a ton in taxes. If I can invest most of my 1099 income, it will decrease our tax bill by thousands of dollars. We can use Jim’s and my W2 income for living expenses.

We Have Rentals

With purchasing a commercial building at the end of last year, we now have more potential expenses. This purchase also has a very short loan term of 6 years, so that means  the payment is pretty high. Because of this, we feel the need to keep more than is usually recommended in savings. If we are making huge mortgage payments, our liquid cash is gone. Sure we could take out a home equity loan, but that sort of defeats the purpose. Down the road as we pay off this property, we might reconsider, but for now, it makes sense to stockpile our savings.

We Will Be Working for at Least 11 More Years Anyway

Our current loan has 11 years left on the term if we make the minimum payments. Jim will be eligible for his pension at age 55, which is 11 years away. He is really enjoying his new job and the flexibility and challenges it has added to his career, so he is in no hurry to retire. If he hated it, I wouldn’t want him to stick around for the pension, but since he doesn’t, it seems wasteful not to take advantage. After 11 years, the longer he works, the more his pension grows, so he might not be ready to retire then either.

I can see myself working for at least another 10 years in optometry, possibly longer if I feel useful and enjoy it. While we can still bring in pretty good incomes, there is no real hurry to pay off the mortgage.

We Can Still Pay Extra Toward Our Mortgage

From day one, we’ve always made an extra mortgage payment each year. We divide the monthly amount by 12 and add that to each month’s payment. When I decided to pay myself to be the maid, I started putting that money toward the mortgage as well. All in all, we are now adding $350 per month toward mortgage principal. By doing this, we will have the whole thing paid off in 8 years, three years before our original payoff date. It’s not as glamorous as 4 or 5 years, but it makes the most sense right now.

The important thing about personal finance is that is is personal for you. Whatever you decide to do with your money is your decision alone. I would never fault anyone for paying off a mortgage early or deciding not to. In a perfect world, we’d have enough money to never need a mortgage, but for most of us that isn’t reality. We have to make choices on how to use our money in ways that make the most sense, even if that means changing our minds.

Have you flip flopped on any financial plans this year?


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