I could pay off my mortgage right now - I have enough left over from Bob’s life insurance to cover over half, and enough in my IRA to cover the rest without completely and still have maybe 100K left. That’s not a lot, but it would go farther if I didn’t have a mortgage payment. And savings will build back up faster if I don’t have a nearly $800 mortgage payment every month.
Here’s another factor… I’m at trouble at work because I haven’t been getting as much done as I should. Covid-19 and WFH has really aggravated my ADHD, and I am struggling to get things done. I’m trying to get better, but I’ve got the possibility of getting fired looming over my head. Having as much money in savings as I do makes me feel a little less anxious about being out of a job, but I know intellectually that money flow will be better without the mortgage.
Do it. I’ve never regretted paying off my mortgage early. You’ll still have plenty of cash - AND that extra $800/month. Unless you are some financial whiz, or have some need to invest the cash, borrowing to save/make money is a suckers bet.
I’d say pay it off and be done with it. You’ll have the extra money and no matter how shitty the housing market is, you can always sell or get a HELOC to scrape together some money if you need it.
In fact, you might even talk to the bank about getting a HELOC now. You don’t have to use it, but if you ever need it, it’s there.
Once I have the emergency fund, excess cash goes into either mortgage or savings, whichever has the higher interest rate.
Now, that’s a strategy for getting the most efficiency out of my money. But efficiency isn’t always the goal. Say for instance it’s most efficient to pay toward the mortgage. Then some big emergency happens, it exhausts my emergency fund. The bank doesn’t care that I’ve been a diligent borrower and cut my mortgage repayment from 25 years to 10. If I can’t pay the mortgage, the bank will still kick me out, liquidate the property at a discount, and that discount will probably eat whatever extra I put in the house, so it will be a wash.
I’ve never fully repaid a mortgage like that, but I’ve been able to live such that my monthly interest is less than 15% of the monthly payment. The rest goes to principle and escrow, and that’s treated me pretty well for the past 10 years or so.
Though quite honestly, hindsight emphatically shows that I would have been better off putting my spare cash into the stock market. I actually did plow enormous amounts of money into 401k/IRA during that time, so I’m overall in pretty decent shape, but if I’d recognized we were in a generational recession, I’d have been much better off pushing all my spare cash into the stock market. It seems like we’re at that precipice yet again, so I’m changing my posture to reduce risk/increase cash flow, then jump back in sometime in the next 2 years.
Assuming that you can make your monthly payments without dipping into your IRA/life insurance money, and that your IRA and life insurance money make more in investment income than you’re paying in interest, then there’s no financial reason to pay off early.
If you keep the money and pay off the mortgage, you’ll have the money at the end of the mortgage, AND you will have earned a tad more in investment income than you paid in interest on the mortgage.
And you’ll have the equity in the house as well, putting you in a dramatically better financial position than if you’d just paid it off up front.
Those two assumptions are big ones though. For me, they happen to be true, but that’s not the case for everyone. If you’re not making more in investment income than you’re paying in interest, then it is beneficial to pay ASAP, and if you can’t handle your monthly payments, then paying up front may be a good idea as well.
If I have any debt other than mortgage I’m paying that off first as the interest rates are most likely higher. However, if the mortgage is the only debt, then paying it is quite likely a good idea. If you should need money down the road, most financial institutions will float you a Home Equity Line of Credit (HELOC) for a pretty good rate. That’s what we’ve done and we’ve had to dip into it every now and again.
I’m not a financial advisor, but if I were you, I’d pay it off. Also, for others who might respond to this thread, it might help to know how many years into your mortgage you are, and what rate you’re paying.
Keep a reasonable amount aside for emergencies, but pay off as much as you can. Don’t start spending the money you aren’t using to pay the mortgage, use it to build up savings until you reach a very comfortable point.
My Dad has a rationale that even though he could pay off his mortgage now because of inflation and money being worth less down the road, with a low mortgage interest rate, it’s better to not pay it off. He reasons that paying over the life of the loan he will actually be paying the bank less money because it will be worth less. I think he also worries about emergencies down the road where he may need the cash.
This is too simplistic, because you can’t just assume those returns in the future - you can’t make those returns without taking RISK with your investments. If you have the money to pay off your mortgage and choose instead to keep the mortgage and put the money in the stock market, you are essentially choosing to borrow money to buy stocks.
How much of that payment is taxes and insurance escrow? How high is the interest rate on the loan ? How much interest per month are you paying out?
If you take all your insurance money(no tax consequences) plus most of your savings (capital gains rate)how much more would you pay in state and federal income taxes?
As you may guess, I would not pay off the mortgage. You don’t have enough money to live on as is and you would probably have to pay more in rent if you have to move.
What rate are you paying? And don’t forget, your housing expenses don’t go away after the mortgage is paid off - you still have taxes and insurance and maintenance.
My farm is paid off, and it’s a great feeling. I’ve been able to put 30% before tax into my 401k, build up my cash reserves. But I have a secure job. If I thought my job was in danger, I’d want plenty of cash to live on while unemployed.
Is there any way to use the ADA with your ADHD to get some accommodation for your stress at work? Or at least go to your doctor and perhaps change/increase your meds. Perhaps you need to had an anti-anxiety med in with your ADHD med.Do you have a employee assistance program at work? Consult with them.
Personally, I wouldn’t do it until your work situation is resolved. You can always do it 6 months down the road.
That’d be my attitude, too. For a couple of reasons.
I’ve been in the “Got ADHD, Could Get fired Tomorrow” situation (Though I worried for months before I should have). But when it finally happened, my boss was amazed at how calm I was. It was because I knew I had enough in the bank to get the family through 8 weeks of no income.
As a side note, that ‘financial life preserver’ is also handy if the boss comes up with a demeaning ‘probation’ or annoying extra tasks you need to do to prove you can keep working there. You want the ability to refuse, or quit outright, without worry.
And a weird one, that might just be me:
I’ve noticed that to get through the pandemic, I need cash.
Don’t have much I can DO with it right now, but I need the psychological security blanket of X number of twenties in my pocket, and X dollars in savings that I can get hold of immediately.
It’s a bit silly, but my reptilian brain’s the boss…
Are you past the age cut-off to take money out of your IRA without incurring tax penalties? Otherwise, the tax penalties may be significant enough to outweigh any benefits you see from paying off your mortgage early.
I’m not going to give any specific advice, in part because we don’t have all the detailed financial information (which you shouldn’t make public anyway); things like the interest rate you’re paying and potential penalties on paying the mortgage out early are all factors, along with all kinds of personal circumstances, including your level of risk tolerance.
I would say consider the advice provided in these responses from that perspective, and consider the possibility of laying out all the facts before a trusted independent financial advisor (i.e.- not an FA at a bank, which has multiple self-interests, such as encouraging you to keep the mortgage (good for the bank) and using the available cash to buy into a “terrific” fund the bank offers – which may turn out to have high management fees and poor performance). Worst case, if you have no other trusted advisor, by all means talk to an FA at your bank, but don’t trust those bastards to look after your interests – they’re heavily incentivized to look after the bank’s interests first. Keeping that in mind, a good and honest bank FA may still give you at least some useful advice and perspective.