Hindsight on Years of Aggressive Mortgage Pre-payment

I have written in depth about my mortgage and my aggressive payoff plans. I really hope that you don’t follow in my example and treat your mortgage like a pants on fire debt emergency like I did because that was a huge mistake. Keep in mind that while aggressively paying down my mortgage, I also maxed out my pre-tax 401(k), my HSA when it was available, and my Roth IRA. I also maintained a healthy six month emergency fund and another six months across liquid stock index funds and bonds.

I regret aggressively paid down a 2.5% mortgage. Over the course of 2.5 years, I made $126,000 in extra payments. At my current expense level including my required mortgage payment, that is 2.6 years of expenses. Instead of hiding $126,000 in my Vanguard taxable investment account in the form of stock index funds or in a cash savings account, I hid it in my mortgage, from which the only ways I can extract equity are by applying for a HELOC currently priced at ~4.25% in advance of when I need the funds or by selling half of the condo to my husband over time.

Doesn’t this chart look motivating? I made such huge strides on eliminating that mortgage debt pretty quickly: within the first 2.5 years, I paid off exactly 50% of the original mortgage balance.

Mortgage Balance Aggressive.png

Why did I do this?

I was scared of my mortgage.

My original mortgage balance was 3x my gross base salary when I bought the condo. I had never had debt before (no student loans or credit card debt) and having 3x my base salary in debt was HUGE.

15 year fixed mortgage rates and 5/1 ARM rates were the same when I bought my condo. A decent portion of my income came in the form of deferred compensation and I didn’t want to lock myself into the payments of a 15 year fixed rate mortgage, so I thought that a 5/1 ARM was the perfect compromise – the rate of a 15 year fixed rate mortgage with a 30 year amortization. I didn’t trust in my then-income level enough to lock in the 15 year fixed rate payments. The difference between the two payments? $1,900/month versus $1,20o0/month when the lower payment caused me to see zero increase in my annual expenses over renting and I was stashing $2,000/month into savings on top of maxing out my pre-tax 401(k) and Roth IRA.

I didn’t understand compound interest.

My parents preached that debt is bad, anyone who carries debt is financially irresponsible, and no one should hold their mortgage or student loans or any other debt any longer than minimally necessary. I’m not really certain of their investing strategy because they think the stock market is too risky and you should invest entirely in bonds, real estate, cash. That’s a debate for another time. I started saving for retirement while I was in college (back in 2007), but all of that was put into certificates, not into the stock market. No one explained compound interest to me until I found the financial blogosphere back in 2011 and despite the number of advanced math classes I took in high school and college, I never figured it out either. You don’t have to save nearly as much for retirement if you frontload it in your twenties and thirties and invest in stocks. The Vanguard S&P 500 Index Fund, for example, has an average annual return of 10.83% since its inception in late August 1976. That’s just over 40 years ago. That is pretty much unheard of in cash returns! At least in my lifetime that I can remember.

I was scared of the stock market.

Yes, I had no comprehension of compound interest, yet somehow I was perfectly happy locking away money in retirement accounts for many decades and investing in stocks there, while being scared of investing in the stock market outside of my retirement accounts. I would rather get a guaranteed 2.5% return than incur the increased risk of the stock market that could possibly get me a 10.83% return. (For the record, Vanguard currently tells me that I have seen a 9.0% return over the last 6.5 years that I’ve had accounts with them or 9.8% over the last 5 years, which is when I started hunting for a condo.) I was so scared of losing money, of seeing my account balances go down, that I took the guaranteed 2.5% return instead.

Why was this a huge mistake?

Liquidity.

I’m sitting on a desire to take a sabbatical from my highly paid tech job and I’ve spent much of 2016 setting aside additional liquid funds in order to finance that. Had I not paid down the mortgage so aggressively, I would have already had that fund. Assuming I had invested the exact same amounts I paid extra on the mortgage into Vanguard Total World Stock Index Fund on the exact same days that I made extra mortgage payments, I would have had $148,924.73 in the index fund on 10/1/2016 and I would have been ahead. Now, the stock market has done reasonably well over the past 4.5 years, so in the following chart I also compare aggressively paying down the mortgage to aggressively saving in a 1% interest earning savings account:

Investing vs Aggressive Mortgage Paydown.png

Notice how the green line and the red line are pretty much on top of each other? Cash currently would be worse than aggressively paying the mortgage by a mere 2%. Investing has been at best 19% better than aggressively paying the mortgage and at worst, $215 better, thanks to a rising stock market over the last several years. You look at this second chart and wonder why I paid the mortgage so aggressively when I could have accomplished the same net mortgage balance within $2,000 by just keeping the extra funds in cash.

What does this math show?

If I could have been convinced to not blow all of the money I threw at the mortgage over the last 4.5 years, I would have been better off leaving it in a 1% savings account than throwing it at the mortgage quite so aggressively. That would have left me with significantly more liquidity.

In late 2011, I wrote a post entitled “What to do with extra monthly and bonus cash flow?” in which I explained several ideas I was tossing around:

  1. Split the money up three ways into investments, pre-paying the mortgage, and saving for a 20% down payment on a house
  2. Split the money up 50/50 into investments and pre-paying the mortgage
  3. Split the money up 50/50 into pre-paying the mortgage and saving for a 20% down payment on a house
  4. Invest all of the money
  5. Use all of the money to pre-pay the mortgage and pay it off really quickly

My conclusion? “Right now, I prefer the first option since it still allows the extra funds to be diverted back to mortgage pre-payments or investments at any point. The fifth option isn’t very flexible and the fourth option is the riskiest.” Yet, that is not at all what I did. I went with the fifth option.

But then, once I bought a place, I picked a 5/1 ARMset out to pay it off before the rate reset, which was absolutely a side effect of the fear of the rate resetting, and got addicted to the high of paying down the mortgage. It was so much higher than any high I have ever experienced from saving. I was really convinced that the mortgage would be paid off before the rate reset, before life happened in the form of my now-husband moving ina job change that unexpectedly reduced my income, starting grad school, and getting married. I’ll talk later about how we plan to handle the mortgage going forward in our marriage.

Back in July 2012, I thought “I’m not the sort of person who would *not* take out a loan to invest. I’m the sort of person who would have more job security if I lowered my yearly fixed expenses by $14,469.48 than by having a larger amount of money in the bank.” I no longer believe that to be true and I can’t take back the large payments I made on the mortgage without doing a cash-out refinance or opening up and drawing down a HELOC. I was addicted to the fact that early on in the mortgage, I could pay $X in an extra payment, which was about Y normal monthly payments and shave off 2*Y regular monthly payments off the end. I got addicted to paying down my mortgage.

It’s all incredibly irrational. Personal finance is all so personal. But that chart doesn’t lie – I would have been better off keeping my mortgage payoff fund in cash.

Aggressively paying down my mortgage being my biggest financial mistake shows how much financial privilege I have. If you hate debt as much as I do, I am absolutely on board with paying extra on your mortgage, but not this all or nothing approach for several years like I did. That said, buying this condo is quite probably the best financial decision that I have ever made – by a stroke of luck, it has appreciated an average of 11% annually since I purchased the property. I didn’t even need to pay the mortgage any extra to get the benefit of that appreciation.

Cash could have been turned into extra mortgage payments later.

Liquidity is king.

Advertisements

54 thoughts on “Hindsight on Years of Aggressive Mortgage Pre-payment

  1. I’m at the point now where I am dunking huge amounts into my mortgage, but you make a very good case for stopping. Because of mortgage interest deduction a 1% interest savings account is only 1.5% worse than prepayments (and as you said, much better liquidity). At the same time…

    My biggest financial mistake is that I’ve been worrying about rising interest rates for like a year now, liquidating many of my assets waiting for the Fed. My logic has been when rates go up bond funds decline in value. Further because of over leveraging into the market stocks will also decline in value. So I’ve lost out on a pretty decent amount of market gains, which is clearly dumb. But at the same time I feel like we’re constantly at the edge of a cliff and can’t see any good options for investment.

    • I think that liquidating assets in favor of waiting out a stock market collapse is a bigger mistake than prepaying your mortgage. You have to think about what the markets will look like in thirty years. If you think they will be higher than they are now, then you should invest. If they will be lower than they are now, then should you consider finding another investing strategy.

      • Yeah, I am DCA-ing funds back in because rationally it is probably the best thing to do even though tbh I am not entirely sure we aren’t going to go the Japan route for slow growth over the next few decades (esp. given how little tolerance Fed has shown thus far to market corrections).

  2. We’ve talked about this (via email) before, but I don’t think this was a mistake. You are over-cautious with how much liquidity you think you need, you can refinance to lower payments, early mortgage pre-payment is worth more than later mortgage pre-payment, etc. Plus, the mortgage was scary when it was bigger and you had fewer cash reserves and paying it down brought you peace of mind. It was the right decision at the time for you just like stopping pre-payments later was the right decision at the time. You’re still doing just fine. If anything, you over-saved for retirement(!)

    And you can never predict how the stock market is going to do a priori, only ex-post. Good decisions will always seem too cautious when it comes to the stock market because it’s risky.

    • Adding:
      The goal isn’t to optimize the dollar amount that you end up with at the end. You don’t have a crystal ball, so risk exists and managing risk is important. The goal is to find a balance of dollar amount, risk, and consumption.

      • You are very wise as always :) and my husband and I have most likely found a balance for this “problem”, though we will see how that unfolds in the next few years.

    • Perhaps this wasn’t a mistake overall, but the rest of the post was really written as a letter to the younger me who chose to prepay over anything else, who was being over cautious and didn’t understand the other options.

      I actually can’t refinance anymore without making the debt a marital owned debt, but we can use legal documents to adjust the ownership of this mortgage that is currently legally only mine. I’ll talk about that later.

      You’re right that paying it down at the time made me feel a lot better, as did stopping prepayments when I did. Part of my decision making towards paying it down was fear of the property dropping in value and still being on the hook for the mortgage. Things have gone the opposite way though in that the property has appreciated just about 50% and that equity is all locked up too.

      Your point about uncertainty with the stock market is also why I compared the mortgage prepayments to a 1% savings account because that is less affected by market risk.

      I probably have oversaved for retirement. The main reason I’ve been doing the Mega Backdoor Roth IRA is because my husband has undersaved for retirement and combined, we are better balanced.

  3. Yeah, I made the exact same mistake. Although I hesitate to call it a “mistake.” It’s still a good idea to put additional money into your mortgage if you can, and there are good arguments to do it even if you have other investment options.

    But I was addicted to putting more money into it too, up until a year or two ago. It must be because there is an end in sight (mortgage payoff) and you want to hit that goal. It didn’t help that I could make payments through a credit card and use that to meet spending requirements to get frequent flyer mile bonuses. That option dried up at about the same time I realized putting all that extra money into a retirement plan was a better idea. So it looks like I haven’t made an extra payment since March 2015.

    • As nicoleandmaggie pointed out as well, it probably isn’t really a mistake. It was so so hard to stop prepaying even though it really did make sense. I really wanted to fully pay off the mortgage and hit that goal once I got going.

      Oh wait you were prepaying your mortgage over contributing to retirement accounts?

  4. I think over the course of my mortgage, I mostly just rounded up. If I had a $757.09 payment, I would pay $800. No rhyme or reason, that’s just what I did. I mostly went the stock market route (though I also blew plenty of cash on travel) and it paid off, but it could have just as easily gone the other way.

    I think the difference might be that my parents have mostly always had a mortgage so it just seemed like a pretty normal expense for a homeowner to have. But there was the time that I thought the 5.25% interest was “too high” on the 30 year, so I went a 15 year 3.625% less than two years into my mortgage. if I recall correctly, it was a no cost re-fi. It’s all irrelevant at this point since I chose to sell that asset.

    • To be fair though, you had a 15 year fixed mortgage and I have a 51/ ARM. That also affects the decision making.

      My parents paid off their mortgage when I was around ten or so I think so to me, not having a mortgage seems more normal. Refinancing from 5.25% to 3.625% with a no-cost refi seems like a no brainer to me…

      • I 10000% agree. I mentioned the part about noticing my parents because I picked up on what you said about your parents thoughts towards debt and I assumed they had paid it off fairly early. And yes, I thought it was a no brainer to refi. It increased the monthly payment by roughly $200 or so, it also got my property tax out of that escrow account so it gave me flexiblity bunch those deductions in higher income years. The extra $200 didn’t matter because my purchase price was so much smaller than “what my income could afford” according to the banks, which I imagine was the case with your purchase as well.

        • I don’t think I even looked at what banks thought I could afford. (I just checked and they likely would have given me almost 2x what I bought. They would have even let me buy a bigger place with a 15 year mortgage.) I tried to find a nice place without increasing my monthly costs from renting.

  5. Hindsight is always 20/20. Never beat up yourself with the choices you have made, just learn from them. My story would have you pay off your mortgage now instead of investing in the stock market. Compound interest was a scam for me. I thought I was being wise to invest my money. Money that was hard earned by the loss of my parents… The biggest problem for me was picking the right stock, mutual fund, etc. That is what the financial industry does not tell you. I got in during the dot com boom. Then got slayed in 2001. Decided to pay off my home loan which was 6.25%. Almost bought a new home in 2007, but dodged that bullet and ended up paying off the mortgage as the home bubble popped the stock market. With the mortgage gone, we were able to save money at a fantastic rate, far greater than compound interest would have done. Being debt free is king.

    • Yup and I won’t be making any further prepayments most likely. Getting married complicated finances a bit. Thanks for the perspective :)

  6. Interesting hindsight perspective!

    Reducing our mortgage is one of my near-term priorities. I see the argument for a taxable investment fund instead, but it is not a guarantee. Part of my logic is that had circumstances been different, we would have saved up a much larger downpayment (30-50%) before jumping into this real estate market just because it is so expensive. That wasn’t a good option for us (besides the fact that any delay would have eroded our purchasing power due to price increases, though we didn’t know that for sure).

    My plan is to focus on this strategy until we have kids and allocate the money for other priorities or the mortgage seems low enough risk that other goals supersede it. I think either of these will happen within the next couple of years. I’d be comfortable stopping now, but I also don’t think that other priorities have risen above the mortgage.

    • Your house cost much more than my condo and I agree with you about wanting to reduce risk. If we bought a house here, we would likely put a pretty huge down payment in too. Well most likely we would put 20% down, sell the condo, and then pay the house mortgage down some more.

      It seems you have a somewhat similar strategy to what I’ve done – paying it down until other goals take precedence and then doing other things.

      • Yeah, and so much is psychological, so just getting it paid down enough from the starting part is helpful in the worry department.

        Paying it down enough such that a recast of the mortgage would affect our cash flow in a noticeable way is not really going to happen any time soon. So I guess the risk we are buying down is longer term cash flow, and probably most importantly, giving us the flexibility to sell at an untimely moment if need be.

        Housing in expensive cities is very much a “choose which risks you want” game, avoiding risk entirely is not possible, IMO.

  7. Liquidity! Exactly why I was way more comfortable getting a car loan than decimating my savings.

    Reducing my mortgage remains a priority (because as you know, mortgage settings/rates here in NZ are very different and I have no guarantee about what could happen in the future). But it’s a balance. I don’t want so much of my net worth to be in real estate. And I have other financial goals in the near to mid term as well.

    • I did a car loan as well! I even made the payments to the car loan directly out of the savings account designated for buying a car. I just didn’t want to decimate liquidity.

      My mortgage rate is only fixed until early 2018 after which it will change annually, which definitely contributed to the decision to pay it down aggressively. It sounds like you are working on striking the right balance for you!

  8. This is why I love the FI blogging community. I would’ve paid off any future mortgage as fast as possible if I hadn’t read this. I am definitely filing this post away in super important posts I will revisit when I get a mortgage. My parents paid off their mortgage about 8 years into their loan. I still remember the steak dinner we had as a celebration (steak was rare [<–hah pun] in my house so it was a big deal). Thanks for writing this up!

    • Happy to help! If it helps further, I would do the following if I could go back in time:
      1) Buy the same condo because we love it.
      2) Stretch the extra bit and take out a 15 year fixed rate mortgage instead of the 5/1 ARM.
      3) With my monthly cash flow beyond expenses and retirement accounts, invest in index funds and/or cash.
      4) With my bonuses, pay extra on the mortgage until I’m more comfortable with the balance and then put split each bonus partially into the mortgage and partially into cash/index funds depending on other goals. I probably would have also done some recasts early on (my credit union would let me do them for free) after making large payments.
      5) Once I had 50% equity in the condo including appreciation and things were serious with my now-husband, I wouldn’t have paid a penny more extra on the mortgage and possibly would have recasted the mortgage.

      My parents paid theirs off really quickly as well, which absolutely influenced me! Interest rates were so much higher back when my parents had a mortgage than they are today though…

  9. It boggles me the amount of tax free capital gains that can be made. My friends who only bought about a year ago for just under $600k are planning their next move, will be to like a $900k house – in the next few years I guess? In 6-8 months, it’s possible/likely mine has appreciated 10% according to 1-2 website estimates. (I wouldn’t be so confident, I’d say maybe 2-3% comfortably. But who knows, and it doesn’t actually matter to me.)

    • I know, right?! Home ownership comes with so many advantages. In the US, to get the full $250k/$500k (single/married) capital gains exemption, you need to have lived in the property for 2 out of the 5 most recent years. (Or something like that) So you can’t flip too quickly at the very least.

      You’re right though – it doesn’t really matter how much it has appreciated unless you plan to sell. We had it evaluated as part of our marriage contract. It does give me a ton of peace of mind though knowing that I’m not underwater.

  10. Thank you for your perspective. I agree that we often forget to take liquidity into account in these decisions. We’ve thrown extra at the mortgage since getting it.. but only in small increments until the last year. This is where we say: “do what feels right to you” – I don’t anticipate my world entirely changing without a mortgage balance… but paying down the principle faster feels right for us right now.

    • We always feel like we have endless liquidity because our future income streams will never stop, until they do and then you question all of those assumptions! Contrary to what you might have taken away from this post, I do still believe that my world would be better without a mortgage balance ;)

      • Oh, I agree that you think that. :) I’ve thought about saving the mortgage balance amount in a savings account and when it covers the mortgage, just paying it off with that… but it seems more complicated and the benefits for me don’t seem all that great. Our mortgage balance is at $60,000 now though, so we’re not talking triple digits anymore.

  11. 1. Did you adjust for tax on investment gains (up to 23.8 + state for the LT and higher for ST) when you sell the index and pay off the loan. Didn’t see it referenced in the post.
    2. I do not do this, but thoughts on low but variable interest rate margin (like IB) to invest in stock index – similar but not identical logic should make you want to do it at some percentage (a percentage where historically there never would have been a margin call perhaps)

    Ultimately on the personal comment – I agree (if this is what you meant) that the payoff mortgage vs invest decision ends up being far more personal/psychological than expected return oriented. Expectations long term should be stock market outperforms and presumably you could have gotten a fixed rate mortgage to remove any issues with variable returns. 30 year also removes a lot of the return variability. So expected return is usually if not always in favor of invest, Though for many/most people (anecdotally), they would save through extra mortgage payments but wouldn’t actually save the same amount extra otherwise, so paying extra towards the mortgage is actually the right approach. It is also often a goal spouses get behind more easily.

    • 1. I did not adjust for taxes at all. I felt that not adjusting for the tax deduction the mortgage interest provides was a fair tradeoff for not including the tax drags of savings account interest and capital gains on selling the index funds to pay off the loan.
      2. That’s exactly why I compared against a savings account as well, to show the cost of just the liquidity, ignoring the possible returns of the stock market.

      “the payoff mortgage vs invest decision ends up being far more personal/psychological than expected return oriented.” -> This is exactly what I meant.

      In hindsight, I probably should have stretched and taken out a 15 or 20 year fixed rate mortgage to remove any issues with variable returns and the ARM possibly adjusting. Paying off debt is absolutely so rewarding and addicting and I’m not sure how much of a different decision I would have paid even with the larger picture understanding that I have now.

      • Leigh,

        Sorry for my lateness but….Congrats on your marriage! Very nicely written and a humble blog post this truly is! I would agree with nicoleandmaggie that it wasn’t really a mistake. Yes you could have been better off but you did it then based on your risk tolerance. I guess having a higher net worth allows you to let go a bit and make wiser financial moves. But then again after a certain point one should not care about making more money anymore.

  12. At the end of the day it comes down to if you are okay with some arbitrage. I know some people don’t like to think of it this way, but if you DO have the cash to pay down your mortgage but you choose to invest it, you are banking on your investments yielding or appreciating more than the mortgage interest rate. Now in your case, with such a low interest rate I’d like to think that strategy is pretty safe – but does it let you sleep at night is another thing. I’d like to think that if/when I buy a home I’d take out a 30 year mortgage and pay the minimum payment for those 30 years. More times than not (depending on my interest rate) I should come out ahead if I invest the money I could of used to pay it down. But that’s the math side of the equation, who knows if my heart will allow me to do that.

    I wouldn’t call what you did a mistake. You are extremely conservative with how much liquidity you need :)

    • You’re right – I didn’t feel comfortable banking on my investments to yield more than my mortgage, even though that is the long-term assumption because I wasn’t thinking about the long-term – I was thinking about the five years it would likely take me to pay off my mortgage.

      I’m definitely curious to see what you would do with a mortgage some day, especially since you paid off those low interest student loans!

  13. I moved into my husbands house when we married. I had been only working for two years at that point and just finished paying off the 90k in loans for my masters. My husband had been working for 5 years and put 20% down and was actively prepaying the mortgage. Well about 3 months before the wedding his mom said she wanted back the rest of the money she loaned him for his masters in tune of about 50k. So I insisted in a cash out refinance because it was the only way to pay her back quickly at reasonable rate. We locked in a 15 year mortgage at 3.125% and I’m happy to pay just the payment for now. Currently we have a little more than a third equity in the house and besides maxing all our retirement accounts we’re cash hoarding in an opportunity fun to maybe buy a rental property or two when the economy takes another dip.

    I think my personal philosophy is to only buy a home you can easily pay off in 10 years if you wanted to without living on rice and beans and ramen.

  14. Thanks for sharing this post. I definitely need to remind myself that going after my mortgage really aggressively isn’t necessarily the optimal strategy. I also really appreciate the transparency. You are so incredibly knowledgeable about all things money.

    • Thanks Penny! Just because it isn’t the optimal strategy for financial reasons doesn’t mean it isn’t optimal strategy for your personality.

  15. With today’s low rates, paying off a mortgage just doesn’t make financial sense. It just doesn’t. Period. If you are investing in the stock market and willing to be patient for at least 10 years, you have about a 97% chance of coming out ahead. 15 years? 99%. 20 or longer? Literally a 100% chance of coming out ahead financially.

    The math is straightforward and simple to see.

    • Wow, Thomas, that’s a pretty harsh comment to leave on someone’s blog where you’ve never commented before. Yes, the math is straightforward to see. As the other commenters and I pointed out, however, it is entirely a psychological decision in reality.

  16. Leveraging is great if everything goes perfectly. Say I have three properties, two of which have mortgage, and one is paid off. The ones that I have to borough money have a hipher ROI than than one that is paid off.

    But if things goes wrong like if I couldn’t fill the apartments, then I’d be in trouble with the cashflow. Having a paid off mortgage take a huge load off my mind.

    I also did not paid off my student loan. I had $100k in student loan when I graduated in 2006. Within a year, I paid off $24k. Because they were 7% and 5% interest. After that, they were federal loan going at 2.88%, and if I was to make consecutive payment and sign up for automatic payment, my rate got down to 1.88%. There were no reason to pay it off. Although, for the good part of 2008-201, I stayed off the stock market, only invested in my 457 plan.

    But I don’t regret my decision, people don’t understand as a young professionals girl, it’s a cut throat corporate world out there, I need the cash on hand at all time to feel financially secure. I don’t want to rely on a man. When I feel ready, I’d invest. In my philosophy class, the conclusion is the decision that you make at the time is the best decision possible for that moment. I don’t regret not being “brave” enough Ito invest.

    It takes time to learn about index fund, or how to wiggle as a landlord, it takes time to mature and make the right corrections. I don’t think my 26 years old could handle having 5-6 guys who come to work for me and ask for payment BEFORE they start the job. I don’t think my 26 years old self could draft a contact that can protect me. My 26 yo self would not have been able to convince anyone who come to work on my property to fill out a medical release form. Yes, I wish I could learn to write better in college, but the substance isn’t there, the life experience isn’t there when you’re too young. Yes, some kids are lucky that their parents were in the business, but you’d have to have the will and the right people with you. And that’s luck.

  17. It takes maturity and courage to admit your mistakes, especially online with a following. I have read your blog for a while and my husband and I had argued over the liquidity issue. I was more on your side, but he did out the math and told me exactly what you said in this post. I trusted his judgement even though I was nervous about it. To hear you talk about it here has assured me of his decision. I too hoarded money and disliked debt, especially when I was single. It took me a long time to come around the concept.

    • I’m happy to help reassure you in your decision to believe in your husband’s judgement :) I’m sorry it was such a heated discussion for you two though!

  18. Great post! The holding cash as an alternative to paying down mortgage interest is a foreign concept to me since I’ve never even come close to itemizing; the standard deduction has always been a huge winner.

    Your graph is slightly confusing to me. Why is the the blue line (which is total world stock index) below the other 2 lines? I’m sure I’m interpreting it backwards somehow, but I ask because others may be confused as well.

    • Thanks Trip! Sorry I only just now dug your comment out of spam. My property taxes alone are a pretty good chunk of the single standard deduction.

      The blue line (total world stock index) is the net combination of investing in total world stock index plus the mortgage balance at each date in time. That net amount being lower means that if I took the balance of the index fund and paid extra on the mortgage, I would have a lower balance than my other two schemes described here (paying aggressively as I did or holding cash).

  19. We’re about to make our secondary goal (after mortgage savings) paying down part of our mortgage to get the PMI off our house. I’m a little scared that this will happen to me, too. The upside is that I think needing to save for my baby girl’s college will help to stop me from just being like, “LET’S JUST KEEP CHUGGING ON THE MORTGAGE.”

  20. Leigh, ask your mortgage company if you can re-amortize the mortgage. This isn’t refinancing, it just means the monthly payment gets recalculated for the lower balance so that you’ll have a lower monthly payment. While this doesn’t give you liquid access to all the extra money you’ve paid in, it will lower your monthly payments for the rest of the mortgage so that you’ll have lower monthly expenses. This could still make it easier for you to take a break from work.

    • Recasting is definitely a possibility, however, my mortgage company requires a $10,000 extra principal payment within the preceding twelve months in order to be able to do a recast. All of my extra principal payments are older than that. My mortgage is an ARM and its rate will reset in February 2018. The “extra” principal being paid between now and then by not recasting is less than $10,000, so it doesn’t make sense to recast at this time.

Comments are closed.