Paying Off the Mortgage - Good or Bad?
I had an interesting conversation late last night in the chat room when a guy asked if I thought paying off his mortgage would be a bad or good idea. There is also a very good thread on that topic in one of the MyTMMO message boards. It seems there is this theory that it is “better” to keep the mortgage and put any extra money into an investment account of some type and that somehow works out better mathematically.
In fact, that was the fellow’s argument last night. He has the cash on hand to pay off ALL his debts, mortgage included. But his hesitation last night was that he would earn $6,000 more over the course of 7 years by not paying off his house now.
Y’all know me … I was scratching my head over this one. When I asked for more details, especially on the “how” part, he said he could earn 4% on his savings and come out $6,000 ahead during the next 7 years of his mortgage. That’s either a money market account or a bond fund I figure, and rather conservative. So, I asked a few pointed questions:
- Just how much has the Fed cut interest rates recently? And what are they predicted to be doing with the interest rates?
- Has he ever heard the words “bear market”?
- and the most effective: $6,000 divided by 84 months is how much extra money per month?
That last question is what got him. LOL He didn’t answer me with a figure, so since I feel lazy this morning I broke out my calculator function. This guy is agonizing over $71.43 per month over the next 7 years. From what he indicated about his tax bracket, I think this might be less than one hour of work per month for him.
I’m not a true math geek. In fact, when you start throwing the alphabet into math problems, I start losing interest in it. If you throw in the Greek alphabet I start disliking math. I will confess to nerd status as I figure my miles per gallon with every fill up on my Pizza Taxi, and still enjoy fiddling with my monthly budget numbers. I don’t know how they figure up mortgage amortization charts, but I know enough about mortgage amortization charts to know I like being way ahead of their time schedule. It ties into my “hate to pay interest” philosophy.
That being said, I am totally in favor of paying off a mortgage as soon as you can. Numbers be damned LOL There is a solid and strong appeal to the notion of owning the home I live in: outright, completely, and fully owning it. There is an even stronger appeal to the dream of not owing any payments to anyone for anything, except for utility use and groceries.
I am so looking forward to the day I get to that point in the Dave Ramsey plan! It won’t be until the end of the year at the absolute soonest, because there are steps in between paying off consumer debt and paying off the mortgage that are vitally important and simply cannot be skipped. After we pay off the truck note we will be out of consumer debt (that’s Baby Step 2). Then we need to build up the big honkin’ emergency fund - 3 to 6 months of expenses (we are going for only 3 months since hubby is military and has pretty good job security right now) which is Baby Step three. Baby Step 4 is saving 15% of our income for retirement, and Baby Step 5 is saving for my rugrat’s college. Paying extra on the mortgage is Baby Step 6, and is done after all the previous ones are in place. But it sounds like a truly great place to be!
I can imagine life without a house note (mortgage) now. I can imagine the walkaway power it gives someone in a job they don’t like. I can imagine the freedom it gives when the worry about how to pay a house note is gone. I can imagine how little stress there will be about job changes (voluntary or not), retirement, the prospect of starting a business, and most importantly the lessening of stress if a major medical emergency rears its head. I can think of a LOT of reasons paying off a mortgage is good, even though I can’t assign a number value to them.
And if the guy I talked to last night for some reason doesn’t like being completely debt free including his house, he can always go get another mortgage! LOL Somehow I don’t think he will. I asked him to tell me next month how it feels to not have a house payment.
