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:
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?