This blog contains some simple tips and advice from two regular guys. We're not accountants, financial advisors, or brokers, so follow, ignore, or discuss our ideas as you see fit.

Thursday, November 19, 2015

Paying Off The Mortgage Early, A First Person Experience.

Posted by Paul

Is it worth it to try to pay off the mortgage early?  Frugalize has had postings about that very subject:

One View On Paying Off The Mortgage Early
The Mortgage Prepayment Conundrum

I wanted to share a personal story about that this exact experience.

For my family paying off the mortgage has never been a major priority because:
1) We made sure to buy a house that we could afford so that the mortgage payment was never a back-breaker.
2) Thanks to the recent low interest rates the amount going towards interest never seemed THAT bad.

So our tenuous plan was to just continue on saving as much as we can towards retirement, rainy day fund, etc and not really worry about the mortgage.

Fast forward quite a few years and we noticed that the remaining principal in our mortgage was getting smaller to the point where if we used the money in our rainy day fund, a fund we were using to save up for a new car, and basically almost every spare dollar we had that we could pay off the mortgage.

Well we decided to go for it, and so far here is my advice.  Don't do QUITE what we did.  When we paid off the mortgage we really depleted our rainy day fund and a lot of our spare cash.  We didn't touch 401k's or anything like that, but it still seriously depleted our cash reserves.  Now of course that monthly mortgage payment was gone, and that's awesome, but it still takes time to replenish savings that have been building up for years.

Also, right after we paid off the house we had some unanticipated repairs that we couldn't really put off (our fence blew down in a wind storm, and some other stuff).  For quite a few months it was like: "Well the extra money we have from not paying having to pay the mortgage is going to this repair, then the extra for the next TWO months is going to this repair.".

Normally these repairs would have been paid for out of our rainy day fund, but with that gone, it made us feel lacking in cash for quite some time.  In fact it has been almost a year now and we are just now feeling like the lack of a mortgage payment is translating into extra cash.

So my advice is that paying off the mortgage is a great feeling, but if you thinks it's feasible and are considering I would suggest that;
1) You make sure you can do it without having to dip into retirement savings (or any other fund that involves a withdrawal penalty).

2) You don't have to COMPLETELY deplete your rainy day fund.

That second point is the one we missed.

Also one thing we did that worked out well for us is that when we paid off out mortgage we checked to see how much of our payment was going towards our annual property tax bill.  We took that amount every month and had it set to automatically move into a savings account (so basically we were acting like our own escrow account).  That worked great because when that annual property tax bill came in the mail we had the money ready to go.

Any other Frugalizers out there been down this road?