Last time, I wrote about the financial elements to consider when you’re deciding whether to pay off your mortgage early. See here for that post. Today, I want to touch on the emotional elements of paying off debt early.
As discussed in the last post, you are almost always better off financially to slowly pay off debt at a lower rate and invest your extra cash in a higher expected return investment option (ie you pay 3% on your mortgage and you can expect 6-9% from your portfolio). This maximizes your wealth. BUT, there are lots of emotional and risk related reasons to pay off your mortgage quicker than scheduled. Some of these reasons are:
- Many people aspire to be debt free. Being debt free feels really good (ie I don’t owe anybody!)
- Paying off the mortgage is a “guaranteed” return. The more you pay off, the less interest you’ll have to pay which is a form of a guaranteed return. Investing in a portfolio is not guaranteed and involves a great deal of uncertainty and risk.
- Most people should have a low debt load as they enter retirement. You don’t have to be debt free in order to retire, but you should not be up to your neck in debt payments.
As you can see, there are some pretty compelling emotional and risk related reasons to pay down your mortgage faster than scheduled. There are also some compelling financial reasons to not pay down your mortgage (see earlier article). Every person is unique and should come up with a debt reduction plan that fits with their outlook and life goals.
Will you pay off your mortgage quicker than scheduled? If you want to discuss, feel free to give us a call.