Back in May, I made an announcement on the blog that my husband and I had opposing viewpoints on investing vs. paying off the mortgage. He wanted to invest, I wanted to pay down the mortgage.
This led to our unscientific experiment which resulted in us making additional mortgage principal payments in May and June as well as opening and investing in a taxable account through the low-cost robo advisor through Wisebanyan* (see our progress in the tables at the end of this post).
The original post received many valuable suggestions and opinions on the debate between paying off the mortgage vs. investing.
Rob at Money Nomad stated, “I would probably agree with your husband, considering current interest rates (clearly the two of us are more risk-averse). I would then invest the rest in something more stable than the stock market – like an eREIT or P2P lending platform.”
Becky shares how her family approaches their mortgage, “We also compromise on this. But it looks different. What is important to us is to have the house paid off at retirement. So we figured out what the balance of our mortgage will be at retirement. We then figured out how much we need to save every month to have accumulated the pay off amount. So we can participate in the market now and yet still know we can not have a mortgage in retirement. Another benefit is that it is liquid if something catastrophic happens. This is another kind of peace of mind.”
Julie at Millennial Boss decided to sell her house, “We were toying back and forth between keeping our house and having renters pay off our mortgage slowly OR selling it. It’s currently up for sale now and we’re hoping to get it sold soon. Ultimately, we decided that we wanted to be mortgage free, especially now that we are living out of state.”
Our Next Life comments, “Since we’re just about a year and a half away from early retirement, and the numbers say it’s better for us to have no mortgage in ER, we’ve decided to pay down our mortgage rapidly. But we question ourselves literally every single month, especially when the markets are high, like they have mostly been lately. But like you said, it’s guaranteed return, and we’re pretty sure it will feel amazing to have our house paid off. That last point is worth something, too, even if we can’t put a price tag on it!”
All great advice, suggestions and comments on the highly debated issue of mortgage payoff vs. investing (see the original post for all of the valuable comments!).
When I wrote the first post, I warned we don’t have much extra at the end of each month and, I admit, it was a complete challenge to even come up with what we did. But we did end up finding an extra $600 over two months solely through selling items on craigslist, ebay and to family (my in-laws bought a patio table and chairs, my mom bought a pair of shoes I was going to sell on ebay).
Mortgage Payoff Update #1
|May 2016||June 2016||Total|
|Beginning Principal Balance|
|Regular Monthly Prinicipal||$408.93||$410.79||$819.72|
|Additional Principal Payment||$150.00||$150||$300.00|
|New Principal Balance||$263,467.62||$262,906.83||$262,906.83|
|Interest Saved* (over life of loan)||$295.27||$292.49||$587.76|
|Time Saved (months)||0||0||0|
|Effective Rate of Return**||3%||3%||3%|
**Effective rate of return is interest rate after accounting for the mortgage tax deduction (deduction is less due to accelerated loan payoff)
Taxable Investment Update #1
|May 2016||June 2016|
|Rate of Return||.80%||.80%|
I won’t update our experiment again until September – vacation time is here, which I anticipate will take more time and money, slowing progress temporarily.
*We chose WiseBanyon because of the user friendly application, along with the low minimum investment of $10, and no associated fees (though they do have the option to pay for tax loss harvesting). So far, we’ve been happy with how easy it’s been to use WiseBanyan’s robo advisor services.