Paying off your house

[jobae1234]

My DH has always been obsessed with the idea of a paid off house. He’s had some medical scares recently that make us think he may not be able to work forever (though not life threatening). He has doubled down that we need to pay off the house ASAP, in the next 24 months, which is a lofty goal, but we are coming in to a large sum of money which will cut it down to about 100k owed. We’re high earners, so we can make it happen if we want to.

I’m happy to pay the house off early, but we’re on track to pay it off in another 12 years or so and that was good enough for me. I’m much more interested in the stock market or in investing in a rental property. This is a very emotionally charged decision for him- he wants to make sure we will be ok if something happens to him. With the mortgage I could keep us afloat but it would be tight. Without it, we would be fine without his salary.

Who else has done this? My understanding is that it’s not the most solid financial decision, but it’s very rewarding emotionally to have a paid off home. People are either for it or against it. We’re good on retirement (currently set to retire at 59 and 64), and we aren’t done saving for kids’ college but we have time there. So this is more about the best way to get ahead.

What I’d really like is to hear from others who paid off their house early, and if they recommend it.

[bee20]

The math response is to look at your interest rate and make a decision.

When I had a mortgage at 5.75% over a decade ago I did work on paying it off early. I knew it wasn't my "forever" house and figured I'd get the money out when I moved. It worked out fine in that I sold in the timeline I expected to, and if I would have stayed in that state my house would easily be paid off now.

With my current house, the mortgage rate is 3% so it's better to let inflation make it cheaper every year. Also, speaking to your husband's emotional feeling, my tax and insurance is 1/3 of the payment, so while it would go down, I'd still have a significant monthly payment.

Ultimately, if you're only talking $100k, the "bad math" cost isn't that bad and it sounds like it would help him feel a lot better about his health scare.  It wouldn't be my personal choice but sometimes we spend money on things that make us feel better.

[dr.girlfriend]

We are getting close. We refinanced to a 15-year in 2012, and pay direct deposit biweekly which shaves a bit off as well. We're down to around 50k which we have sitting around in our checking account.

I think it would be emotionally satisfying to pay it off, but then I'll also have to figure out how to pay my own taxes, etc. which I find a little intimidating. Also, our interest rate is 2.75% which I'm pretty sure we can make better-than interest if we put that money elsewhere. Between the two of us we're putting $40k into I Series Bonds between last year and this year, and I'm pretty sure that rate of return is going to be much higher than 2.75%.

Would your husband be satisfying with putting enough into safe investments (bonds, CDs, etc.) that you could pay off the mortgage if needed within a year but he knows he's still making interest on that money greater than the mortgage rate? Honestly, with medical scares I think I'd rather have the money potentially liquid for big expenses either related to medical stuff or "enjoy life now" like travel, etc.  If you paid off the house and then wanted money for something else I doubt you'd get a very good rate on a HELOC or personal loan or whatever (of course all depending on your mortgage rate but if you're a regular on this board I'm guessing you jumped on a good rate by now).

That said, not every decision is financially wise. My husband had a student loan that was at 0% interest but was a big source of stress for him, and we paid it off all in one go because he just felt terrible every month when he wrote the monthly check. Sometimes things are worth it.

[tcu2003]

We paid ours off around 6 years ago, and don’t regret it. Sure, we could have made more in the stock market, but we also had paralysis analysis on opening a non-retirement investment account. We were also maxing our 401k accounts and contributing to the kids’ 529 accounts, so felt comfortable there.

For us, and especially my DH, we appreciate the comfort of knowing we own our house free and clear. It’s also given us the kick in the pants to find other things to do with our house payment and extra income. We still max out 401k accounts, fund the 529 accounts up to the max state income tax break we can get, fully fund backdoor Roth accounts, and now have a non-retirement investment account. We’ve also upped our giving (though still need to up it more). It’s also been helpful for me (and DH) to take a step back and realize we can do some of the fun/bigger trips we want to do now, while we’re younger and our kids are still young and want to travel with us.

[krystee]

Would he be okay with you putting the amount to pay it off in a nonretirement investment account so you can pay it off immediately if income changes require it, but in the meantime, it can grow in the market?

[jobae1234]

Jan 5, 2023 0:31:58 GMT -5 krystee said:

Would he be okay with you putting the amount to pay it off in a nonretirement investment account so you can pay it off immediately if income changes require it, but in the meantime, it can grow in the market?

He is a super smart guy but for some reason he doesn’t understand the stock market. The way it’s been the past two years, he wouldn’t agree to that. He grew up extremely poor, no heat not enough food etc, so his emotions get in the way big time. It’s good that he doesn’t overspend or what have you, but he just can’t seem to be mathematical or logical about money.

[mrsd2006]

Does he have life insurance on him that would cover the amount of the mortgage if something happened to him?

[simpsongal]

Does your DH have life insurance? It sounds like he might benefit from exploring his unease w/finances and fixation on paying off the house. Would a financial planner help? Counseling?

I get the emotional value of extinguishing some debts - like dr.girlfriend, I have a student loan that I reeeeeallllly want gone. But at $17K and 2.5% interest it just doesn't make financial sense. Tackling it also means I would be putting off other things that I want to do like house renovations or big family vacations.

While it's kind of you to explore this, I think it's fair to explore the tradeoffs you'd be making for a paid off house. Are you putting off vacations, renovations, other savings goals? Anecdotally, my BIL insisted on a 15 yr mortgage w/a high payment. I'm guessing their house is close to paid off but they've put almost nothing into renovations and the house is in desperate need. So while they may have no mortgage they're facing hundreds of thousands in changes and my SIL hates their home. Literally, hates it.

Of final note, I don't think of a 'no mortgage home' as huge a win since a huge chunk of our monthly payment is taxes and insurance (maybe 50%?) - so it's not like we'd be zeroing out the budget line....KWIM?

[chilerellanos]

It’s my boyfriends goal to have his house paid off in the next few years. By the time he’s 50. At which time he will quit his main job, and just substitute teach at the small town he lives in and jump as much as his body can handle it.

He is pretty set financially, and a high earner and will get his military retirement. It really will free up him being able to work as he wants vs working to pay on a home forever.

It is a very large home though, so idk if he’s really actually planning on keeping it as his forever home. He could just live on the main floor, but it’s a lot of house to heat and cool, so once his 4 kids are gone, idk. It doesn’t make sense to keep it forever. It is on 15 acres of beautiful land though, so that’s hard to give up.

[Susie]

I'm a hard no on this.  We moved last year and are 1.5 year into a 30 year mortgage fixed at 2.75%.  Paying that off any faster than I have to doesn't make financial sense.  

Right now the closest I would be willing to come to what YH is proposing, would be to put the extra money in a savings account with the best rate I could find (I think my current highest is Lending Club at 3.6%).  You can park the money there, earn more than you're spending on the loan, and he would have the peace of mind that you could use it to pay off the house if you had to.  In the meantime you're getting a little more out of it than just paying the house off straightaway.

[steamboat185]

Our house will be paid off in April. We made the choice to pay it off early several years ago and have been paying about 1300-2000 a month extra. We both know we would have made more by putting it into the market, but ultimately we wanted the flexibility of not having a mortgage in our early 40’s more. We both wondered a few times if paying it off early was the right call, but I think once it’s gone in a few months we’ll be really happy to have the extra money and a physical building that we own. (Plus we are planning on taking a fun trip at some point to celebrate).

I’d consider maybe trying to pay it off early, but in a way that doesn’t make it feel super constricting on your budget. Would 5 years be doable?

Edit someone said their taxes and insurance are included in their mortgage- we separated ours years ago when we refinanced and pay them independently. For us it really will be a true net gain.

[dr.girlfriend]

Jan 5, 2023 9:32:03 GMT -5 chilerellanos said:

At which time he will quit his main job, and just substitute teach at the small town he lives in and jump as much as his body can handle it.

I'm sure you mean like base-jumping or jumping from airplanes or something but I am just imagining someone quitting their full-time job to kangaroo-jump around their house 24/7.  :-)

[noodleoo]

I think I'd work on a compromise. Paying off $100K in 2 years is fast, but I understand the emotional value in paying it off early. Maybe make a plan to pay it off in 5 years instead? We have a very low interest rate but we still put extra money towards principle every month with a goal to pay it off early (before the kids start college). My sister paid off her house a few years ago and there is something very freeing about knowing you own your home.  But she also lived in a VLCOL area where it was easy to pay it off early (I'm only slightly jealous LOL).

I'd also make sure you have life insurance and long term disability insurance for your H. Would that make him more comfortable?

[jwright]

I'm also a hard no. Our interest rate is only 2.25%; I can walk into Wells Fargo right now and get a 13 month CD for 3.75% interest.

As someone else said, we owe more each month for tax and insurance escrow than we do for principal and interest so we wouldn't eliminate housing costs as much as it seems. Although without a mortgage, you could reduce or remove insurance for more savings but that's too risky for me.

How many years are left on your mortgage and what interest rate?

[jobae1234]

So his medical issue is brain injury. He has had repeated head injuries and the last one set him back for quite a while. Another blow to the head and his ability to work may be diminished or gone. So while we do have plenty of life insurance, the worry is not that he will die. It’s that he will be unable to meaningfully contribute.

He wants to quit his career and start a business, and he thinks it will be easier to do that with lower overhead. He’s not wrong. Sort of a Coast FIRE type thing.

I asked him to sit down and talk this afternoon before our kid is home from school. I’m going to ask him about what his ultimate goal is and have us identify other ways we can get there. We have a financial planner, so maybe a meeting with her would help.

PDQ: We refinanced when rates were low, so 2%ish. We owe 250k on a house worth 500k. Our payment is $2300/mo and would drop to $800/mo without the mortgage. We are 38 and 43.

He may go for putting it in a CD to earn interest, so we can pay off the house whenever we want.

If he can’t be budged I’ll probably agree to it, but only because we’re in good shape otherwise and it’s not a BAD idea. It’s just a less good idea than other ideas. Lol.

[jwright]

Maybe put it in a six month or one year CD or money market account and when it matures see if you still want to use hat lump sum against the mortgage?

[chilerellanos]

Jan 5, 2023 10:24:11 GMT -5 dr.girlfriend said:

Jan 5, 2023 9:32:03 GMT -5 chilerellanos said:

At which time he will quit his main job, and just substitute teach at the small town he lives in and jump as much as his body can handle it.

I'm sure you mean like base-jumping or jumping from airplanes or something but I am just imagining someone quitting their full-time job to kangaroo-jump around their house 24/7.  :-)

He’s on a parachute demo team.

He jumps in air shows and into stadiums and such.

[just]

jobae1234,

I'm usually a very soft no on this, I think the emotional component is HUGE.
However, the interest rate that you have was practically free money when you go it, and now - is absolutely golden and may not happen again in our lifetimes. I'd do everything I could dissuade/compromise with him.

Perhaps reminding him, that when that money is tied up in the house, and something happens that you need cash-flow, it's much more difficult to get out than if it's in another financial vehicle. If he has another head injury and has to quit work, that's one thing, but if he (or you or the kids) need additional support that comes at a cost, having access to the money may be much more comforting than not having a mortgage.

[dr.girlfriend]

Jan 5, 2023 10:56:42 GMT -5 jobae1234 said:

He wants to quit his career and start a business, and he thinks it will be easier to do that with lower overhead. He’s not wrong. Sort of a Coast FIRE type thing.

I don't understand the Coast FIRE thing so maybe I'm missing something, but my husband recently quit his full-time job to start his own business (freelance professional speaking).  Fortunately he did really well but I think having a cushion of cash for start-up expenses was definitely key.  Ultimately they were business expenses but he had to outlay the cash before he really had business income.  Maybe paying off the house and freeing up cash would accomplish the same thing but with a rate of 2% I think putting it in very safe investments makes more sense.

I will also say, I totally sympathize.  I know I've talked about this in the distant past, but my husband grew up very poor.  He was in his early 30s when I met him and he had never had a checking account (just did everything with a debit card) or credit card, had never flown on an airplane, had never made reservations at a restaurant, had never learned to drive, that kind of thing. 

It's amazing the ways it impacts him still.  A lot of it was just exposure -- once he had access to things (e.g. a vehicle to use to learn driving) he took to things like a duck to water, but there have been times when we really needed to delve into his emotions about things.  For example, when his mom owned a house briefly, he came home from school to find all their stuff on the lawn and the locks changed by the sheriff.  To him, renting meant security, and home ownership meant you could potentially be homeless at the drop of a hat.  I knew that's probably not what happened -- I'm sure his mom missed a bunch of mortgage payments and probably ignored notices and tried to protect him from their financial insecurity, but lessons learned early tend to stick and it took a lot to get over that for him.  In other ways, he's very free with money where I am more of a saver, which I found counterintuitive at first.  Anyway, that was a big long tangent just to let you know it can get tricky!

[daisyduck]

I have paid off two houses and haven't had a mortgage payment in several years. It is absolutely amazing and I would do it again no question. We are high earners, so we could still contribute to retirement and travel while making significant mortgage payments. We pay taxes in 2 payments - one in December and one in March and we pay insurance in one payment in September. We do this to avoid any type of monthly housing payment. Since you said you are also a high earner I'm guessing you could do the same.

Could my money have done more for me in the market? Maybe. But since I have no monthly bills I stash away a lot of money now and have ultimate flexibility. I had a 7 figure net worth when I was 33, so paying off the house definitely didn't hurt me in the long run.

[imojoebunny]

I am sort of your spouse in this area. What we ended up doing that made more financial sense long term, was investing in other property, that we could sell to pay off our main house, easily, if needed. Then we still get the deduction for interest on our main home, but we have another piece of real estate that has no mortgage (It could have a mortgage, and still be a hedge, had we chosen a different type of property). Doing it this way allowed us to both expand our investments, while making me comfortable, that I wouldn't have to move, if something happened to our income.

[minzy]

We own outright and I do not regret it at all. I think, given his upbringing and health concerns, your husband has valid (although maybe objectively only mild) concerns about the security of his family. If it gives him peace and you can afford to do it, do it. To quote old school Suze Orman, “First people, then money, then things.” This is a people thing before it’s a money thing. If I were in your shoes, I’d likely defer to him since he feels so strongly about it.

[jewel]

We refinanced into a 10 year loan a few years ago, with the goal to have the house paid off before kids started college and then cash-flow school for them. That loan is at 1.99% so it would absolutely have been “better” to get a 20+ year, pay as intended, and invest the rest. But we aren’t. We will, hopefully, have the house paid off in the next couple of years and I am ok with paying a premium just to be done with the debt. I am fully aware that this is a mental/emotional benefit and not a financial one.

If your H is struggling with worry about his future and the financial security of your family, that discussion is a bit more complicated. Is there a compromise you can come up with? Maybe invest the money in CDs for a couple years and then revisit? Put half the lump sum down and save the rest? As someone with anxiety, I know that appeasing my brain is not always the best logical solution, but it’s worth my peace. If it’s not a hardship to pay off the house early, I’d strongly consider it though, or at least some version of it.

[midwestmama]

One thought I have is that if something were to happen to your husband, and the mortgage is 100k or less, can you refinance to have a payment based on the new amount owed? (Somebody please jump in to say if that doesn't make sense, but it seems like the way to reduce the mortgage payment to something affordable on a high-earner's salary.) Or you could refinance after making the large payment that will reduce the mortgage to around 100k. Then you can take the savings from the difference in monthly mortgage payments and start saving/investing that money. Would that be a good compromise, so that your husband feels comfortable that the mortgage would be manageable if something were to happen to him, and you also feel that you can take advantage of the higher savings/investment interest rates?

For me, I'd love to have our house paid off. Two years ago, DH and I switched to a 15 year loan (we did a cash-out refi to combine our mortgage with HEL for vacant land we purchased the prior year), and still make additional mortgage payments to try to pay it off faster. We'd like to pay it off by the time DS graduates high school (around 5.5 years away), but that assumes we can make a lump sum payment from our bonuses each year as well. I feel like we'll have much more flexibility and peace financially once we don't have a mortgage payment.

[ohgillian]

This is not what you asked, but I just wanted to note that it’s OK to not take the option that makes the most sense financially or mathematically. There’s no reason that the best choice financially is inherently a better choice than the one that’s emotionally comforting and slightly less financially beneficial.

Full disclosure, I would not pay off the house, I prioritize the financial benefit. But it’s OK to prioritize different things!

[Deleted]

Jan 5, 2023 10:39:37 GMT -5 jwright said:

I'm also a hard no. Our interest rate is only 2.25%; I can walk into Wells Fargo right now and get a 13 month CD for 3.75% interest.

As someone else said, we owe more each month for tax and insurance escrow than we do for principal and interest so we wouldn't eliminate housing costs as much as it seems. Although without a mortgage, you could reduce or remove insurance for more savings but that's too risky for me.

How many years are left on your mortgage and what interest rate?

We're like you. We got a crazy stupid good interest rate when we refi'd in 2021 (1.99% for 10 years) so despite the emotional appeal of having it paid off, which we can actually do right now, it's not the best use of our money. 

[flygirl]

I can empathize with your H and him wanting to have the house laid off so it’s not a worry if something were to happen. Would your H feel better if you had money in an account to pay it off at a later date? Plus maybe having an extra large e-fund? I know that as my efund grew I felt more comfortable have a low interest mortgage.

[jobae1234]

Thank you all, especially for the kind and empathic responses about the emotional side of money.

I’m leaning towards putting the money in a CD and if he hits his head again, we have it for whatever we need including paying off the mortgage immediately.

[Pom]

It would be tough for me to do with a low interest rate. I do get all the emotions of the decision.

We ended up with the decision being somewhat removed due to a move/career change/found perfect retirement home in dream location and therefore ended up with a cash purchased house. We have no regrets because our retirement funds are solid, I have a lifelong pension-like income and therefore it worked out.

It sounds like you have decided on a good solution.

Eta: I meant to add we definitely consider ourselves coast FIREd. Having no mortgage makes this so much more comfortable.

[jewel]

I also want to add that I view this decision more as a privileged choice for many people, than a strict financial decision. Plenty of people spend money on luxury items that make them happy, when less expensive things would work just fine. Paying off the house is my luxury item.