Monkeys - usually this time of year, I spend a lot of time thinking about my financial goals for the upcoming year. One thing that keeps coming to mind is to pay off my mortgage ASAP. 15 year at 3.375% with $130k outstanding.
Currently I’m 2nd year analyst in a product group at a BB (non NYC) and plan on going A2A this summer. Operating under the assumption of $35k sign on, and a bonus of ~$95k, that would be a cash inflow of ~$85k this summer. With that, and if I threw all of my personal FCF at the mortgage, I could probably be debt free in about 6 months.
I didn’t break into an analyst role until I was 25, so I’m 27 now. Have also been working full time since I was 19 and have a NW of $500k currently (Stocks, bonds, home equity).
Since I already have significant exposure to stocks and other assets I won’t miss out on a run up if I use the cash to pay down mortgage. Also, I have no idea what the future holds but equities seem over valued, seems like a tough time to be dumping sizable chunks of money into the market. All in all I would be 27, paid off house, ~$600-700k NW making Associate pay.
I understand the mathematical argument to keep the mortgage - but the thought of not having it is really compelling.
What do you think?
Go for it
If u want to do it for peace of mind, why not. The arguments we'd use to talk you out of it are the math ones, which you said you already understand. Not sure what you're looking for aside from an anecdotal story of some other guy who waited to pay off his mortgage and just so happened to have enough cash laying around to buy into GME and ride it to the moon, at which point its just an anecdote and I'd hope you wouldn't take it as a realistic opportunity.
Paying off mortgage = less debt and therefore no one you "owe"
Not paying off mortgage means more cash today that you could do whatever you want with, including investing in things that would out-earn your interest rate and result in more cash longterm. That's about it.
Edit: As anyone who has ever considered Apple's balance sheet knows, debt is not always a bad thing. Dave Ramsey just says so because half his listeners can't control themselves from buying a boat on a freshly minted credit card even though they have less than $500 in savings.
I agree with this. The math says there are better uses of your capital that return >3.5%. However, for me, the increased ability to take career risks due to lower financial stress is more than worth it.
If you can earn a return greater than 3.375%, which you should be able to?, that would be one argument against doing that.
I suggest you don't take advice from people who are only a few years out of school who've never had a mortgage (and probably no loans either).
As others have stated, paying off the mortgage isn't a math issue. It's about comfort, risk tolerance, peace of mind, etc. Have been at this a long time. Have discussed this with hundreds of clients. Really, everyone's issues are different. No right answer.
For me, as a younger person, I thought playing the arbitrage game was great. As an older person, I like the comfort of less debt. Easy to live well when you don't owe anyone anything.
It's a very personal issue.
Refinance instead and throw your cash into investments. Grow the pie instead
I would tell you to invest it and pay the interest but I didn’t do that so I get where you’re coming from. IMO, wish I didn’t pay off the debt, it was easily serviceable and I’d rather have the liquidity. Entirely your call though and you can’t go wrong either way.
Anyone commenting should say whether they have a mortgage or not. I have a mortgage.
Assuming real estate is a relatively high % of your net worth, you should make this decision purely based on your next best investment alternative. That's your evaluation criteria.
Since your mortgage is low and can be easily paid off, you could instead buy a rental property somewhere (or save up and buy one this time next year). That requires time and effort, although you can always hire a manager to help run the property. The investment, interest on your existing mortgage, and effort will hopefully reward you with passive income and eventually capital gains. Rates are low, so now is a good time.
The other option is to invest in equities so that real estate isn't such a huge portion of your net worth (I'm making assumptions here). Putting money in equities might feel hard given where valuations are, but (A) you shouldn't try to time the market as a long-term investor, and (B) if you think valuations are high, all the more reason to buy a low-cost passive fund and hold for a few years. Only con here is that it may be tough to beat the interest rate if the market growth slows (you never know...who knew we'd exceed record highs last year!).
So if those alternatives don't sound great and you have a healthy (not excessive) amount of your net worth tied up in real estate, then you should probably just pay off your mortgage.
Math vs. Emotion.
There is no wrong answer here. If you pay off your house, you will be in a position very few on this forum are. Only suggestion is speak to your financial advisor, and then get a second opinion after that.
how much equity do you already have in your house?
I am a dumb young guy but I would probably pay off the mortgage asap for peace of mind purposes, lower monthly expenses, unless a huge amount of your net worth is already in the house.
Risk-free 3.4% return is pretty damn good these days. It’s about what investors are (implicitly) yielding on a lot of blue chip stocks, long-term.
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