Should you pay off your mortgage early? Why or why not?

Hello! Here is a guest post from Melissa Brock about her decision on whether or not to pay off her mortgage. Melissa Brock is a 12-year veteran of college admission, founder of College Money Tips and Money editor at Benzinga. She loves helping families navigate their finances and the college search process. Check out her…

Enjoy!

My husband and I like to make excellent financial decisions. He says I’m obsessed with our finances — which is kind of true. I mean, I listen to the “Afford Anything” podcast and read every personal finance related piece of content I can get my scroll-happy finger on. I’m also the Money editor at Benzinga for my full-time job. (Okay, okay, he’s right.)

Our mortgage is a source of well… pain, for me, if you want to know the truth. All the reading I do probably contributes to that. One day, I’ll read an expert post about how so-and-so plans to invest like crazy, pay the minimum on his mortgage, then run, giggling, toward retirement (early!) and revel in the spoils of compound interest.

This person might say, “Why would you pump money into a non-liquid asset?”

And so my mind goes, “Yeah! That makes sense.”

But then I get this nagging feeling — and I know what it is. It’s the oodles of money we’d save if we paid off our mortgage once and for all. Dozens of other experts tout, “There’s nothing wrong with getting out of debt forever… ever… ever…” (Added echoey reverb for fun.)

So I reach into my back pocket and pick up my phone to ask my parents’ advice, and that matters to me, too. I know which way they’d vote. I think my dad even made extra trips to the bank when he had any bit of extra money in his pocket — he wanted his mortgage gone. (This was actually smart because interest rates were sky-high in the 1980s.)

After lots and lots of discussions (sometimes I exhaust my husband), I’ll lay out what we decided to do.

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Our story

My husband and I had our 10-year plan mapped out soon after we got married — we’re both firstborn planner-types. (Kind of annoying, if you really think about it.)

We put on paper exactly what we wanted to accomplish over the course of 10 years.

We added “save to build a house” to our list. I really, really wanted a brand-new home because it ensured we could get what we wanted the first time around. I wasn’t interested in knocking down walls to make a decent-sized living room, decimating wood paneling or ripping up old carpet. I didn’t want a fixer-upper — I wanted one that had bedrooms for our two kids and a guest bedroom for family and friends.

I’d bought a tiny split foyer house when I was 24, and I’m glad I did because it helped make our dream a reality. We welcomed a puppy to the Little House on Skenk Street (no, I’m not kidding, that was the name of our street!) and it had begun to feel too small by the time we added our daughter, son and a cat named Hank. We were outgrowing our home. So, the plan was good because we had to do something about our tightening quarters.

Thankfully, we’d put that plan into place and had been saving to build for eight years. We’d amassed a sizable nest egg, too — that was important because building a home is super expensive.

I insisted on real stone (my pick), a decorative wood-burning fireplace (my husband’s real love) — all set on three acres of land.

The bank said, “Sure!” — now, I know that just because a bank is willing to lend you a certain amount, that doesn’t mean it’s the amount you should borrow. In fact, I realize we arguably did the opposite of what every financial professional suggests. The experts crow, “Buy a modest home! Spend no more than 25% of your take-home income on your mortgage payment!”

I confess, I never did do an actual comparison of what our mortgage amount would be to our income. This was before I’d really solidified my personal investment philosophy. Would I have done some things differently?

Actually, in hindsight… no. I absolutely love this house! And fortunately, we live in the Midwest, which works in our favor. Had we lived in California or New York on our current salaries, we’d never have been able to afford it.

I wasn’t making much money at the time as an admission counselor at my alma mater. I talked to families daily about financial aid and paying for college, so when our mortgage amount doubled, I started freelancing. Writing is my first love, anyway, and I was able to side hustle my way toward some great opportunities. In a way, I’m so grateful for this Craftsman-style behemoth for helping me pursue some other avenues.

Anyway, the bank said, ”Yes!” and the builder built it and there we were, left with a new house in a muddy pit (do you even understand how long it takes for grass to grow?!?) and a new mortgage payment. We moved in on an icy day in December (I slipped going up the ramp to the moving trailer) and we kept on going with our lives.

The only real difference was the admiring look back we’d give our new house as we drove down the lane on our slightly longer commute to work. The best part of building it was that it gave us tons more room to move around.

Weighing the pros and cons of paying off our mortgage

At first, neither of us really spoke a word about the mortgage.

It was just there, whisking money from our bank accounts on the fifth day of every month. Whoosh! Gone. We went about our lives with no new 10-year plan. We’d pretty much gotten to the end of the 10-year plan after we’d accomplished what was in the original 10-year plan.

I definitely believe we were in a lull — a “What’s next in our lives?” lull. Then, suddenly, one day, I went on a question-seeking rampage.

“Where are we going in life? What do we want out of life? OHMYGOSH, where should we retire?” AND — “WHAT SHOULD WE DO ABOUT THE MORTGAGE?”

My poor husband.

He’s probably in a constant bewildered state. I frantically researched every expert’s advice. (They all provided conflicting advice.) I asked everyone I knew. (They all provided conflicting advice.)

I waffled back and forth on this for months — and for a short stint, I was absolutely convinced that for peace of mind, we should chuck everything we had at the mortgage. Then I changed my mind. Short of checking myself into therapy over this, we decided to weigh the pros and cons.

Pros to paying off the mortgage

Here’s our official list of pros in favor of committing all our extra money toward paying off the mortgage:

We’d free up cash flow that would otherwise be used to make a mortgage payment each month.
We’d be debt free. For life. From all debts. Forever. (Man, oh, man, there’s nothing wrong with being debt free.)
It feels good. We’d achieve peace if we paid off the mortgage ahead of time, especially before retirement.
We’d have the mortgage paid off before our kids headed off to college — so we could dole out money for that, right?
The interest we’d save! Oh, my land! The zeroes never seemed to end. We would save thousands upon thousands of dollars in interest if we worked diligently to pay it off.

Related: Is Paying Off Your Debt Worth It?

Cons to paying off the mortgage

Next, we made a list of cons that would help us determine whether committing a full-on assault toward the mortgage would be a bad idea:

Lots of cash would be tied up in the house — a non-liquid asset.
Our interest rate is low — and the annualized return for the S&P 500 is roughly 10% over the last 90 years. We’d be missing out on higher returns if all of our efforts were put into paying off the house.
We’d no longer be eligible for a mortgage interest tax deduction.
We’re never planning to sell, but we realized that if the slim chance ever existed, it might be harder for us to sell quickly if we needed to get a very specific amount out of the home.

So, that was our list. I’m positive that there are more pros and cons that could be added to it, but those were the overarching themes that stood out to us and our personal situation.

Talking with the pros

My husband and I have largely been proactive about making our own decisions regarding money. That said, from time to time, we’ve reached out to a financial advisor for sparks of advice. I also got in contact with Vanguard about this very issue just to get another perspective on what an advisor from a huge firm would suggest.

Both professionals’ advice was the same: “Invest in the market!”

It probably reverberated for my husband right then and there. He was all for investing, saving for college for our kids and building up our liquid assets.

I was the roadblock.

I was still waffling because of some deep-seated need to be debt-free for life. (Probably due to the Recession and aftermath of COVID-19 and the possible “What-ifs.” What if one of us lost a job? What if both of us lost our jobs? We’d still have to pay the mortgage. There’s a reason a lot of individuals stated, post-Recession, that debt is still debt, whether it’s good debt or bad debt.

So, again, I was waffling. At one point, I even said, “Okay, let’s just invest.” And then I took back my words a week later. (I’m terribly indecisive.)

At this point, my husband was starting to feel a teensy bit frustrated. I knew I needed to stamp my foot in the ground and stand by a decision.

Our final decision

So what did we decide to do? Well, we actually opted for a hybrid approach. We decided to invest and pay an added amount each month — with the promise that we’d build up liquidity to pay off the mortgage in the future.

We increased our mortgage payment amount and put it toward our principal. Now, this is key. Directing it toward the principal is the only way to see it decrease faster. We rounded our payment up to the nearest thousand. We are not dedicating all of our excess money toward the mortgage. The penny pincher in me doesn’t like the idea of losing so much through interest, so that’s why some extra will be allocated toward the principal.
We invested in the stock market. We wanted to make sure our money wasn’t locked up. We have kids who need to go to college someday and retirement to save for. There are a lot of buckets and we knew we’d need to allocate as much as possible to every bucket.
We have a plan for payoff — down the road. We’ll keep peeking at our liquid assets and determine when the time will be right to start paying off the mortgage in chunks (or in one fell swoop, which would be totally exciting!)
In addition, we refinanced our mortgage to a rock-bottom rate. We took on a lower interest rate and shorter term. As soon as COVID-19 hit and interest rates tanked, I sprung into action and got on the phone with a lender.

Tips for deciding whether to pay off your own mortgage

I’m sharing my story because I hope I can save you from agonizing over your own mortgage. Here’s a conglomeration of things I learned along the way.

Tip #1: Consider your needs and wants. And your future needs and wants.

What’s your comfort level? Are you a person who needs to know that debts are paid off so when disaster hits, you’re in a good situation? Are you absolutely sure your job is stable? The thing is, we don’t know what’s going to happen (COVID-19 taught us that). Maybe you have life insurance, so if the worst does happen, you leave money for your family to pay off the mortgage. (That’s certainly something we took into consideration.)

On the other hand, you might take a look at the numbers and run straight for the stock market because you know you’re going to make more if you invest. Putting blinders on and sticking to the numbers is definitely one approach. Remember, there’s really no right or wrong answer. You are not your friends, your next-door neighbors, your sister, your parents — or to whomever you may be comparing yourself and your situation.

The point is, on some level, it’s a personal decision. Consider your own priorities.

Tip #2: Do the math.

Do you remember hearing the words “amortization schedule” when you closed on your home?

If not, that’s okay.

It’s a giant table that lists all the mortgage payments you’ll make over time and how each payment is applied toward both the principal balance and interest of your mortgage. Your bank probably has an amortization calculator that will help you understand what will happen if you “up” your payment, refinance or pay a giant lump sum toward your principal.

Also, some banks charge fees for paying off your loan early. Check into whether your bank will charge you extra. Many banks no longer do this but check to be sure that your bank doesn’t. The last thing you’d want is to be penalized for doing a good thing for yourself!

Tip #3: Make a decision. That doesn’t mean you can’t reevaluate later.

Sure, you can just pay the minimum on your mortgage for 15, 20 or 30 years — whatever your mortgage term is. But if this doesn’t sit well with you, do something about it. Take matters into your own hands.

Spend some time considering how you’d ultimately like to end your mortgage. Again, you can keep it for the full 30 years. Or you might have a 15-year mortgage and decide you want to pay it off in 8 years!

You as a couple, or you alone, are in charge of your financial future. Your financial advisor isn’t going to make the final call. Your friends, your family aren’t going to make those decisions for you, either.

Be the captain of your own ship!

This is not to say that your goals won’t change later. You might make a different decision 10 years into your mortgage. Your financial situation could completely change. For example, maybe you don’t have extra money to chuck at your 30-year term mortgage when you first buy or build your home, but then you get a better job later. You may switch gears and decide to focus on paying off your mortgage!

Final wrap-up: Do what’s best for you — confidently!

Are there days when I second-guess our decision?

Of course. (Remember, I’m incredibly indecisive.)

The reason I probably agonized for months (I know, too long!) is that we only have one life to live. The choices we make now dictate how we live down the road. I try to think about our decisions very intentionally so our future selves are satisfied. It’s a major thing for me.

Thoreau said, “Go confidently in the direction of your dreams. Live the life you have imagined.” And that’s really what it’s all about, right?

Do you want to pay off your mortgage early?