Back in May, I made an announcement on the blog that my husband and I had opposing viewpoints on investing vs. paying off the mortgage. He wanted to invest, I wanted to pay down the mortgage.
This led to our unscientific experiment which resulted in us making additional mortgage principal payments in May and June as well as opening and investing in a taxable account through the low-cost robo advisor through Wisebanyan* (see our progress in the tables at the end of this post).
The original post received many valuable suggestions and opinions on the debate between paying off the mortgage vs. investing.
Rob at Money Nomad stated, “I would probably agree with your husband, considering current interest rates (clearly the two of us are more risk-averse). I would then invest the rest in something more stable than the stock market – like an eREIT or P2P lending platform.”
Becky shares how her family approaches their mortgage, “We also compromise on this. But it looks different. What is important to us is to have the house paid off at retirement. So we figured out what the balance of our mortgage will be at retirement. We then figured out how much we need to save every month to have accumulated the pay off amount. So we can participate in the market now and yet still know we can not have a mortgage in retirement. Another benefit is that it is liquid if something catastrophic happens. This is another kind of peace of mind.”
Julie at Millennial Boss decided to sell her house, “We were toying back and forth between keeping our house and having renters pay off our mortgage slowly OR selling it. It’s currently up for sale now and we’re hoping to get it sold soon. Ultimately, we decided that we wanted to be mortgage free, especially now that we are living out of state.”
Our Next Life comments, “Since we’re just about a year and a half away from early retirement, and the numbers say it’s better for us to have no mortgage in ER, we’ve decided to pay down our mortgage rapidly. But we question ourselves literally every single month, especially when the markets are high, like they have mostly been lately. But like you said, it’s guaranteed return, and we’re pretty sure it will feel amazing to have our house paid off. That last point is worth something, too, even if we can’t put a price tag on it!”
All great advice, suggestions and comments on the highly debated issue of mortgage payoff vs. investing (see the original post for all of the valuable comments!).
When I wrote the first post, I warned we don’t have much extra at the end of each month and, I admit, it was a complete challenge to even come up with what we did. But we did end up finding an extra $600 over two months solely through selling items on craigslist, ebay and to family (my in-laws bought a patio table and chairs, my mom bought a pair of shoes I was going to sell on ebay).
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I won’t update our experiment again until September – vacation time is here, which I anticipate will take more time and money, slowing progress temporarily.
*We chose WiseBanyon because of the user friendly application, along with the low minimum investment of $10, and no associated fees (though they do have the option to pay for tax loss harvesting). So far, we’ve been happy with how easy it’s been to use WiseBanyan’s robo advisor services.
We have also gone back and forth about investing vs. mortgage payoff. We went in favor or the early payoff because: 1. We are in a low cow of living area so it is well within reach. 2. We love the idea of flexibility. Lowered expenses lends a huge sense flexibility. 3. We can still invest a decent percentage while pursuing early payoff. Thanks for sharing your update!
Thanks, Kalie! I always like to learn how others are thinking about this issue. I’ve actually considered cutting back on the investing to have more to throw at the mortgage because, like you, I’m pretty attached to the idea of flexibility. We’ll see how things go over the next year.
I polled readers and asked Liz Weston, a personal finance author. I was panicky about paying down the mortgage over retirement because I don’t know that I want to retire. After being on disability, it’s dreadful to consider fixed income again. But Liz pointed out to me that my mind may change in the future. She recommended leaning heavily on retirement instead.
We haven’t been able to manage the “heavily” part yet. But I upped it a bit and stopped putting as much toward the mortgage. Ours is small, so we put about as much extra as you do, but it goes a lot farther. But depending on how much trouble we have funding a SEP without Tim’s disability check (during the appeal), I may have to go back to regular payments and throw that $140ish into an IRA.
In the end it’s what matters to you. I think I focused so heavily on the mortgage because it’s small which does mean a small payment, but it also makes early payoff seem far more feasible in a short period of time.
That said, I’m with your husband. Especially during this Brexit thing. Take advantage while everything is cheap!
Thanks for the input, Abigail! We’ve definitely been leaning toward the retirement side all along and it does make the most mathematical sense. Early payoff of our mortgage seems so far off with the balance being so high and that’s why it bothers me so much, I think. And, it was a choice that we made, but it still eats at me. And you’re right, investing right now is a great way to buy more at bargain prices!
Being a new homeowner I’ve been super gung ho about extra repayments! I’m stepping back from that a bit as there is some work to be done around the house that I’d like to get out of the way soon. I’ve also been pondering the balance between that and investing. The sooner we eliminate the mortgage the sooner we eliminate our biggest cost. I’m planning to dip back more into investing in the next couple of months and automate that but for me I think the mortgage will still be the bigger priority.
I understand completely! It’s definitely an individual decision and it can be hard to weigh the pros and cons of both. The math points to investing and I get that, but the peace of mind is worth something too. I’m trying to find a balance here.
Glad to see how the two of you resolved this problem. It is interesting to see how these two methods have compared in terms of return in such a short period of time but with all the volatility in the market it will be interesting to see this in maybe 5-10 years if you keep payments constant. While there may or may not be a better choice you made the best choice by paying off debt/investing! Best of luck with this experiment can’t wait to see how it progresses as I will probably have this decision one day.
Thanks, Stefan! The returns aren’t very reflective of overall performance at this point, for sure, and it will take some a few years to see any real difference. But, you’re right, at least we are saving/investing more money than we were before, which is definitely a step in the right direction.
Hi Amanda,
Just yesterday, I was meeting with a private financial consulting client and advising them to pay down their mortgage debt. It’s a commercial property with a pretty high interest rate, and the client is retired.
The client asked what I would do. Because I am in a different stage of life and will have greater expenses for a while, I am more comfortable with a larger cash reserve than paying down debt.
I think that decision is heavily impacted by your personal financial situation. Sounds like you and your husband came to a good compromise. It will be interesting to evaluate down the road and then write about it.
Thanks for sharing.
Thanks Dave! One of the main reasons I am wanting the mortgage gone is because I don’t want any debt in retirement. Though it’s going to take years to see the difference in the strategies, but either way it’s motivation for us to do something (better than nothing!). Thanks for stopping by!
We’re all about crushing our mortgage. We figure that if something happened to either of us and we couldn’t work anymore, at least we’d have a mortgage-free home to live in! It provides a sense of security I can’t pass up.
You guys are amazing with your progress in the last few months, Claudia! It’s that sense of security that drives me to want it gone too!
Right now, a majority of our extra funds go towards investing. We do pay some additional on our mortgage each month mainly because we want to have it paid off by the time we retire. We normally approach most of our goals with balance and normally are not 100% one thing or the other and it has worked well for us to this point. Maybe we don’t pay down debt as fast or have as high of investments, but it works for us which is all someone should be looking for – a system that works for them.
Curious though – How did you get returns of exactly $1 each month using WiseBanyan? Strange coincidence?
Thanks, Thias! It’s great that you guys have a balance that works for you – you’re so right, everyone needs to find the best system that works in their situation.
I have no idea how that $1 return worked out for both months. I think it was partially timing since we didn’t invest until the second half of May and it actually was better for June until the market tanked on Friday. Also, WiseBanyan shows returns on their dashboard in whole dollars (no cents).
I really like Becky’s approach as she explained above. It’s really interesting to see how you approached this situation and it is great you met in the middle and did both. I’m interest in hearing more about WiseBayan is working out for you!
Latoya, I really liked Becky’s approach as well. In fact, we were taking that approach (and still are to a certain extent), but I wanted to try to do a little better with my savings and I hate seeing that mortgage balance, so created this as an incentive to put away more $$ through debt payoff. It’s been interesting that when I push a little harder, I am able to save even more than I thought I could.
I am going to do a review of WiseBanyan this fall after a little more experience using them. So far, I find the app to be incredibly user friendly and I like how they have the Milestones set up. Milestones allows you to choose a goal and time frame for the goal, in turn providing you with the amount you need to invest each month to reach your goal. Pretty handy for anything you may be saving for. Plus I love the low minimum investment of $10 – really doable for those without a ton of money to invest.
We have gone back and forth on this same issue many times. I think we all have to carefully identify our own risks and use that information to make a decision. We ended up deciding on paying off the mortgage early because I have health issues that make getting life insurance difficult. I am essentially home with my children, though I work from home part time, and two of our three have some special needs. If anything happened to me, my husband would need to get a nanny to help him, and he could do that on his salary, but only if we did not have a mortgage payment. While I don’t anticipate a change in my health immediately, I know in 10-15 years that can be a very different story. Hustling to pay off our house within our stretch goal (5 years) is an extra layer of safety for our family. Now, if we didn’t have these extra things going on- we’d probably keep a 15 year mortgage and leverage any extra income towards investments.
Thanks for sharing your situation, Jen! I can definitely see how the mortgage payoff would provide you with peace of mind, considering the uncertainty of your health. Yours is a great example of just how personal and individual this decision can be. Here’s wishing you a speedy mortgage payoff! 🙂
We made the decision to pay off our mortgage first. It made sense to us financially at the time. Having it paid off now for the past 4 months I can say I’m glad we did it. Sure we have missed out on opportunities by not investing but there is no guarantee that we would have made money investing either. I’ll be the first to admit that it may not have been the smartest financial decision from a numbers stand point. But the feeling I have from owning my home outright, when so many of our friends still have 20 plus years of a mortgage gives me a sense of pride for sticking it out. I haven’t regretted the decision to pay it off for one second. Just my two cents. 🙂
Andrew, sharing your experience is so valuable for those of us who are on the fence or trying to figure out the best path, given our individual situations. You paid your mortgage off in an incredibly short amount of time and if you do the same with your investments, you guys will be FI in no time! I can only imagine the sense of freedom and security that must bring to your family. I appreciate you sharing your two cents! 🙂
Mr. Picky Pincher and I also go back and forth on this. Currently we view a mortgage as a debt, which we are not fans of. So our priority is to pay off the mortgage debt first (it should be paid off in 5-6 years), and then putting all of our funds into investments. I’m not sure how that will work out, though, since with investing you do need to have time on your side. I’m sure once we get into a house and cut down on a few other expenses we’ll be able to start automatically investing a little at a time.
Thanks for sharing, Mrs. Picky Pincher! I think any way you cut it, you guys are ahead by having a game plan. Many people take this approach successfully and, yes, you may miss out on some compound interest, but if the peace of mind of being completely debt free is important to you guys, that’s what you should do. (Plus, the way I look at it, you can reserve the right to change your plan at any time!)