Is it time to pay off the mortgage?

[turf3]

Let me introduce a different perspective.


Businesses run on borrowed money. If you borrow money and what you do with it earns more than the carrying cost of the debt, you are ahead. This is natural and normal.


A lot of people choose to apply the same thinking to their personal finance, especially with regard to mortgages. I can't say that it's wrong to do so, but I don't think your household finances are exactly the same thing as a business' finances. For one thing, most businesses are corporations, so if the business can't make it financially, the business goes into bankruptcy, the investors may lose their investment, but the owners and employees of the business have their losses limited only to the extent that they have invested in the business (they too could lose their investment) - but they don't have personal responsibility for all the debts of the business.


If you personally can't make the payments on your debt, and you have to go into personal bankruptcy, you are personally responsible for every penny of debt. Personal bankruptcy is a drag on your future as well.


We all know that stuff happens. If we could anticipate every unanticipated misfortune, they wouldn't be unanticipated.


So for me and my wife, it has actually been easier on us to know that at any given time we don't owe anyone on earth a dime except for this month's bills. We have been fortunate enough to have cash available so paying off mortgages and car loans does not leave us with the proverbial $6.53 to our names. But two points about that:


1) If you are tight enough on cash that paying off your debt would leave you out of debt but totally broke, I would question whether trying to game the mortgage interest vs. investment income (especially at a time when safe investments earn squat and better earning investments are mostly high risk) is really a good strategy for someone with no cushion.


2) As long as you are in your earning years. you can always choose to eat Ramen noodles and buy your clothes at Goodwill for a year to build your cash back up; but if something goes south on you while you maintain that debt, you can't stop paying on the debt.


I recognize that we may have failed to capitalize on the maximum possible earning potential of every one of our dollars by choosing to go debt-free, but there is a considerable amount of security in knowing that none of your expenses are inelastic. In my personal case this has allowed me to take certain career choices that were sub-optimal for earnings, but optimal for personal enjoyment.

[mathjak107]

Meh .... it depends ... I would not pay off a mortgage by accelerating payments ,ever ... concentrating on mostly cutting costs is not a great idea because costs have a bottom.. when expenses keep rising and there is nothing left to cut , you need more income from savings and investments.

you need investments to generate growth and income outside the house .

The longer you delay channeling as much as you can in to equity investments the less time you give yourself . Time is your friend ..

Cutting short the growing time means your time frame has to be a good one instead of just average to do well.

This is a flaw I see in so many plans where they try to put extra money in to the mortgage payments before kicking their investing in to high gear.
Now they are under pressure to have things do well in a shorter time frame.

Many who had thoughts of aging in place end up having to move because they can’t match expenses on the house rising anymore and there is nothing left to cut ..

Over time that paid off mortgage can mean less and less ..... as I point out so many seniors are forced to leave their homes in the tristate area that they planned on retiring in .

Now that once 35k mortgage they had in the 1970’s is paid and taxes are 12-18k a year .
In affordability that mortgage they paid off does not even represent their utility bill anymore.

So it is important a plan does not concentrate on cost cutting at the expense of growing income generating assets that can eventually create a larger cash flow