Why Aren’t People Talking About These Early Mortgage Payoff Considerations?

One of the more popular topics in the personal finance blogging realm of late has been whether it is advantageous to pay off your mortgage early.  I’d say about half of the people out there believe that it’s a good idea, with the other half in the camp of ‘don’t bother’.

Some of the common things that are usually discussed are:

  • Rate of return – Most who look from a pure numbers standpoint argue against paying your mortgage off early when considering that you could be investing that ‘extra payoff’ money and getting a higher rate of return.
  • Interest savings – Every dollar you pay off saves interest for the remaining life of the mortgage.  Few argue that this is a bad thing, but again, it comes down to whether that savings could be offset by a higher ‘return’ elsewhere.
  • Personal feelings – Few would argue that there’s a weight placed on getting rid of this debt.  How important this is depends on each person and is something that only each person can decide.

These are all important considerations, but if you’re thinking only of these, you’re missing out on some very important things you should be thinking about.  Consider these:

Retirement factor

I’m a big advocate of paying your mortgage before you retire.  Every retirement calculator ever made essentially asks the question: “How much money do you need every month when you retire?”  Take away the mortgage payment and that amount goes way down.

Flexibility Before Retirement

Here’s where I think it gets interesting.  Say you can pay your mortgage off early well before retirement.  This gives you a lot of options in your remaining working years.

It stands to reason that, for most people with a mortgage, this means that you’ll want to earn tomorrow at least what you’re earning today in order to continue paying the mortgage and live the lifestyle that you’re accustomed to.

But what if you wanted to expose yourself to more options, and what if those options included a lower salary?

If you’re making $60,000 per year with a $1,000 mortgage payment today, and that payment went away, you could live the same as you do today on a salary of $48,000.

Why would anyone want to do that?

Turns out, some people would.

What if you were at a point in your career where you wanted a less stressful job?   Few people ever take a step back, but I believe it’s because most people simply can’t afford to.  Ask someone who’s working 10-hour days and has been doing this for 30 years whether they  might want a true 8-hour a day job, and I’m guessing there are a lot who would say ‘You bet’.  Companies could retain people with loyalty, skills, and keep them happy.

Or it could work another way.  If you are looking to get into a new area, or even a new career altogether, having that flexibility from paying off the mortgage could allow you to do so.  What if you could leave your $60,000 job to take a job in a brand new field that started you off at $45,000?  (You could consider a fast online loan while waiting for the back pay to come in).  Chances are, using my numbers above, you could swing the extra $3,000 in savings after the $12,000 in mortgage payment went away.

What if this led to a quick advancement where you were making $100,000 inside of a couple of years.  In this case, the flexibility of taking a lower paying job could actually net you more income in the long run.

How sweet would that be?  Chances are, many with a mortgage might never know, because they’d be unwilling or, lets’ face it, unable to take that initial jump.

Think of all the flexibility and opportunities that getting rid of the mortgage could afford you.  Doesn’t it seem a little too overly simplistic to think about only the rate of return or whether you could invest that money in the stock market?  If you are thinking of only those things, I guarantee you’re not seeing the full picture.

What do you think of my intangible benefits?  Any others you can think of?

19 thoughts on “Why Aren’t People Talking About These Early Mortgage Payoff Considerations?”

  1. The other option that doesn’t get discussed too often is more preventative: don’t buy a house and don’t take out a mortgage in the first place! That probably makes me sound like a typical housing-phobic millennial, but it can be a smart option for some.

    • True, everybody’s situation is different and not being a homeowner is definitely the right call for a lot of people.

  2. The biggest factors that keep me from paying mine off early are inflation and interest rates. I doubt I will be able to get another loan with a similarly low interest rate in the future. Inflation will also help me with my payments in the later years of my loans as we lose spending power my mortgage payment will remain the same.

    I am lucky that I bought a house in my twenties so even if I take the full 30 years my house will be paid off by retirement.

    • True. We just re-financed into a fifteen year which, if we stay where we are, will meet my goal of having the mortgage paid off before the kids hit college.

    • I have to agree with Lance on this one – it’s all about the interest rate. I don’t even think it’s debatable that true inflation is higher than the current rock-bottom interest rates. If the Fed wasn’t trying to “spur” economic development by manipulating the interest rates, the rates would be much higher to reflect inflation. If I’m locked in at 3.75% there’s no way I’m paying it off early. With that being said, there are obviously benefits to not having a mortgage…though I would almost certainly take purchase a rental property if I had a house that was paid off in full already.

      • I remember when I got my first mortgage in 1999, I thought I was kicking butt with my 6.875% mortgage. Of course my money markets were paying upward of 5% so I guess it’s all relative!

  3. For me, the “flexibility before retirement” intangible was the key reason to pay off the mortgage early. Feels great to have the option to pursue self-employment without worrying about a temporary cut in income. Debt = slavery for me, and no debt = freedom.

  4. I love the idea of paying off your mortgage and having that $12,000 + to do other things with. You are right….it provides a lot of flexiblity in retirement. We all have grown accustom to financial planners telling us that we need 80% of our income replicated by investments, pensions, etc. in retirement, not having a mortgage helps you close that gap quickly.

  5. While I agree that paying off your mortgage early could offer you more financial freedom later in life, but many people don’t consider that. They sign up for a 25 year mortgage and live with it. Another thing that happens is that after living in a particular home for 5 or 10 years many people look to upgrade to a house that is bigger and better, which in many cases causes them to start all over again with another 25 year mortgage, but perhaps a larger down payment.

    • Very true, taking on a bigger payment and extending your term is the key to having a mortgage until the day you die!

  6. My wife and me are schedule to pay off our mortgage early and a big reason why is because (A) debt sucks, and (B) we want to buy an apartment buildling. Since I’m a blue collar dude, we’ll nearly never have to pay for an outside contractor to fix problems, and we can use the rent money for our retirement. But that all hinges on us getting rid of our mortgage first.

  7. I’m looking forward to paying my mortgage off early so that I can start saving up for rental properties. The mortgage payment I make every month could be going into savings. I want some paid off rental properties when I retire. That’s my plan.

    But even without that plan… I’d still want to get it paid off. I’d like the stability that comes with owning your home outright.

  8. I have been paying extra on our mortgage since we bought our house and should have it paid off 8-9 years early. The reasons I wanted to pay it off early are purely personal. I bought the house when I was 31 years old and I didn’t want to be paying on it until I was in my 60s. I would like to semi-retire in my 50s and having the house paid off will help a lot.

  9. I liked what you said about Here’s where I think it gets interesting. Say you can pay your mortgage off early well before retirement. This gives you a lot of options in your remaining working years.
    Continue this kind of articles because they are very good and useful, congratulations.

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