I am curious of people’s thoughts on paying off a home mortgage early. We have enough money in savings to do it, but obviously it would make a HUGE dent in our savings. However, then we could still make the monthly payments back to ourselves and we would get both the principal the interest.

We still owe $129,000 on our home mortgage. If we paid the normal payments it would be paid off in 2039, but we pay $100 extra a month, which will pay it off in 2035 and that is when we plan to retire.

Doing simple math, if we paid it off now and then paid ourselves back, we would pay ourselves back about $161K. That would be an extra $32,856 to us, which normally would have gone to the bank.

Odds are we will sell the home at some point and it won’t be our retirement home. Right now the appraised value of our home is around $550,000. Even if we just keep making payments, and sell it one day then we will still have equity. Just thinking about things and wonder if anyone has experience doing this and what their thoughts are.

What is the interest rate on your mortgage?

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Originally posted by Gene Hillman:
What is the interest rate on your mortgage?

5.375%

My two cents…

I’d pay an extra $100.00 per month, keep your mortgage deduction and the money in your savings/investments for emergencies prior to retirement in 2035. And yes, helpful to know what your mortgage rate is as that factors prominently in your decision. You’ve got twelve years up that date. How would these monies be invested until 2035 if not used to pay your mortgage early?

Human behavior being what it is, something else will likely confront you and your efforts to “pay yourself back”.

I would pay it off as long as you still have a nice cushion. Not all finances are based on math or no one would have money problems. The math is simple to figure out.

There is nothing quite like waking up to a paid off house. It just does something to your entire outlook.

Now if you’re the type that lives paycheck to paycheck (doubt it) then don’t do it because lifestyle creep will ruin the second best reason for doing it.

When you don’t have a house payment you will be amazed how fast your investments grow and that becomes contagious.

The financial planner would probably say take that $129,000, throw it in a low cost total market index fund such as ITOT, and then rake in an average of 6-10%. If you got a good rate on your mortgage, like 2.75%, then you’d most likely make a lot more investing that $129,000.

Paying off debt is a sure thing. Gambling in the market is not.

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There is nothing quite like waking up to a paid off house. It just does something to your entire outlook.

That’s kind of what I thought until I realized I was still renting from the county … in the form of property taxes.

Assuming your interest rate is fixed (for this hypothetical), you'd be paying more "now money", than "then money".

As inflation always happens and is really happening currently, your money today is worth more than it will be in ten years. So would it be a mistake, like cheating yourself of value or buying power, sending it sooner?

I'm not saying it is or isn't, yes or no, just kicking that notion around. 12 years isn't a HUGE amount of time, paying it now instead of 20-30 year from now might make more of a difference.

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That’s kind of what I thought until I realized I was still renting from the county … in the form of property taxes.

That’s never ending and lifelong. A paid off house does things for you that you can’t imagine until you are doing it.

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Originally posted by chellim1:

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There is nothing quite like waking up to a paid off house. It just does something to your entire outlook.

That’s kind of what I thought until I realized I was still renting from the county … in the form of property taxes.

My house is paid off. Knowing the bank has no claim to it is one of the best feelings I've ever had. My property tax payment is nothing compared to what I was paying for the mortgage.

Mathematically, there may be better options but I'm a pretty simple guy. I don't enjoy dealing with finances, and I REALLY don't like debt. The lack of stress knowing that I have none is worth any small percentage that I might have gained trying to invest my earnings instead of eliminating my mortgage early.

Another option, pay half of it off and keep making your regular payment.
You’ll be paying extra principal each month due to the amount of interest being lower and that would get you to a paid off home much quicker while still having a healthy reserve fund.
There should be some online calculators that can give you a better idea of what that’ll do for you.
When you send in that lump sum just be sure they apply that to the principal and not prepaid interest. A call to the mortgage company to ask how to make sure of that would be a good idea.

We have six months left and ours will be paid off. Have been dumping an extra $1,500 a month on it for a while. Conventional wisdom and quite a few here said invest that and ride out the term on the mortgage. If I could find a way I would do it in less than six months. I’m turning 56 in November and want to start putting the mortgage payment into retirement planning now. Can’t wait till the final payment is made. My personal thought is how in the world is this house of cards economy still plugging along. A paid off house makes me feel better about what is to come.

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Originally posted by chellim1:

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There is nothing quite like waking up to a paid off house. It just does something to your entire outlook.

That’s kind of what I thought until I realized I was still renting from the county … in the form of property taxes.

Exactly. Even if I pay the mortgage off, I still have to put aside the same amount as my mortgage payment to cover taxes. I don’t do an escrow account.

I am only thinking out loud at this point since our savings has grown. If it stays in savings then it is pretty secure and we can access it when/if needed. If we invest some of it then it is at the mercy of the market. We do have several home repairs we need to do soon regardless if we lived in the house forever or sold it in the future.

Several good ideas brought up so far to think about. Thanks.

Pay it off and don't look back. The peace of mind of being debt free trumps trying to beat your interest rate for the next X number of years. Another way to look at it, if your home was paid off would you consider taking out a $130k mortgage and dropping the cash in the bank?

I take Dave Ramsey's advice on this one. I say pay it off. I'm doing the same with $95000 left and a 2.5% interest rate. Its all about RISK. Would you take a loan on your mortgage to put into the stock market for that sweet return that's over the interest rate? My guess, probably not.

IMO pay it off. This assumes you have enough investment and cash assets to carry you through hard times such as loss of job.

Math is hazardous because it depends on assumptions such as future interest rates or investment returns, health, other financial emergencies, etc. Human nature tends to work against cold math, because people tend to spend money more than once. You could find a pretty safe investment that pays more than your mortgage, but it won't be 100% safe and the difference would be relatively small, something like you pocket an extra $1k or $2k per year. And, you will pay taxes on all of that income! Many people would then splurge and spend that extra $1k or $2k, and maybe even get bitten by losses on their investment at some point.

Paying of your house eliminates the risk.

Also, your tax deduction for the interest is not a good thing. Lots of people tout it as a reason not to pay off the mortgage but that is false logic. Whatever your marginal tax bracket is, that is how much benefit you get. e.g. if you are in the 25% bracket it means that every extra dollar you earn you have to pay 25 cents tax. So conversely every dollar you can reduce your income through the mortgage interest deduction will reduce your taxes by 25 cents. You still pay 75 cents of every dollar of the interest out of your own pocket. So iow, you will pay about $4838 in interest this year on your mortgage. After a tax deduction, assuming you are in a 25% tax bracket, you will still be paying $3628 interest.

You are better off not paying the interest and not having the deduction.

If you pay off the mortgage you instantly earn 5.375% on your money, tax free.

I like going for a sure thing that really benefits your family, which is paying off the mortgage, rather than chasing some pretty minor theoretical opportunity based on math.

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Originally posted by chellim1:

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There is nothing quite like waking up to a paid off house. It just does something to your entire outlook.

That’s kind of what I thought until I realized I was still renting from the county … in the form of property taxes.

Precisely, none of us "own" real estate.

I paid off my house in 2014 due to health reasons and wanting to be sure I was debt free when I went on short term disability at work.

Got back to work in 2017 and then bought a new house in 2020. Could have paid cash, but took out a loan for about 40% of the sales price at 3%. 15 year fixed rate mortgage. The house and a truck at 0% are my only debt, and I could pay them both off tomorrow out of cash reserves.

I choose to keep the mortgage as I am making more than 3% on the money I would pay it off with.

That said, at 5.375% and the 33K in savings in interest, if I were you I'd pay that one off. It was nice to have the (previous) house paid off, but its not some magic pill that takes all of your cares away. If you aren't going to make 33K in interest or investment income over the remaining years of the loan with that money ($161K) it would make sense to me to pay it off.

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Originally posted by SIG4EVA:
I take Dave Ramsey's advice on this one. I say pay it off. I'm doing the same with $95000 left and a 2.5% interest rate. Its all about RISK. Would you take a loan on your mortgage to put into the stock market for that sweet return that's over the interest rate? My guess, probably not.

Not normally, but I was paying extra on one of my rentals with a 3.25% rate. Then the bank offered six-month CDs at 5.50%, so I stopped paying on the house, took some savings and opened up a few CDs to get that extra 2.25%, and am using what I was paying extra to replenish the savings. At the end of the six months, if the CD rate is lower than 3.25%, I can then apply all the extra gains to the mortgage. Otherwise, I will renew the CDs. The payoff will be faster this way.

As a general rule, during periods of high inflation, it's better to be a debtor. I don't know if paying it off is such a great idea.