A frequent topic of discussion and disagreement around here has been whether it makes sense to pay down a mortgage vs. investing additional money. I had always considered paying down the mortgage to be a sound choice, but I changed my mind after reading a number of mathematical arguments in favor of keeping a low-rate mortgage.
Well, I've recently had an experience that muddies the waters a bit for me. My family moved from Mississippi to Florida for my new job in October this year. We currently owe ~128,000 on our home in Mississippi. It's been on the market for three months. We have been paying the $1000 mortgage plus $900 rent for those three months. We just received an offer, but it probably won't close until February. So we'll have to pay the mortage for Jan. and Feb. as well - for a total of $5,000 in mortgage expenses since moving out of that house.
My mortgage note currently breaks down to $210 to escrow (taxes and insurance), $565 to interest, and $225 to principal. So the entire $5000 is not lost - my principal has gone down by $1125, I would have had to pay $1050 in taxes and insurace anyway. But the $2825 would be mine if the house was paid off.
Obviously, there are a number of variables at play here. Is there a possibility that you will move any time in the near future? How quickly are homes selling in your area? What is your interest rate? What kind of moving package is standard in your industry? What effect would paying down the mortgage have on your tax rate? Obviously the decision is personal and it's not strictly mathematical.
Ultimately, the last factor was the deciding one for me in keeping the mortgage. I was able to contribute ~$70,000 to tax-deferred retirement accounts in the past two years, which brought my total income tax bill to below zero. I'm sure I came out ahead by contributing to retirement accounts instead ouf paying down the mortgage, but the same might not be true if my home languished on the market for a year or more.
Bottom line: carrying costs of a vacant house are an often-ignored and hard-to-predict variable when deciding whether or not to pay down a mortgage instead of investing. I'm not at all suprised that many people choose to go this route. I might just do it myself the next time I buy a house.