I guess I'm not asking an impartial audience, but curious if you guys could look at this as a mini case study. I'm on the fence about whether to just attack the mortgage or not.
Info:
Personal: 25M, married
Take home pay: ~112k (about 40% comes quarterly)
Current Net worth (excluding home): ~215k
Purchase price, 8/2013: $275,000
Current mortgage rate: 3.5% @ 15 years (from March 2014, we refinanced already from 4.875)
Current balance: $196,000
Current home value: $280,000*
Monthly payment: $1960 (includes insurance, property tax and interest)
We currently round the monthly payment up to $2,000, so call our required payments $24,000 per year. We have an additional $50,000 or so each year (hopefully increasing but you never know) to throw at this. By my estimation we could pay it off by early to mid 2018.
Pros:
*Wife wants to do it. Would love to be debt free (this is the only thing we owe)
*From the "heart" perspective I guess I would like it too. I don't like the idea of being 40 with a mortgage, so I guess the logical extension is I don't like the idea of a continued one at all
*We will be purchasing the business we work at in 2019 or so. Having low monthly expenses would reduce stress when making payments on that. Now we should be making plenty of money at that point but it would be a hedge against a leaner year
Con:
Math
Other info:
We only live 3 miles away from work but wouldn't mind moving. We love the house but neither of us are emotionally attached to it. It's just the two of us and it's 2200 sq ft. I wouldn't mind moving downtown (within walking distance of work) or just to a smaller place with less maintenance. Especially so when we purchase the business. We will have kids at some point but have no immediate plans.
So what do you say? Given the information above, would you pay off the mortgage or stay the 15 year course and invest the difference?
*Having a realtor friend giving me an estimate on this as she offered.
Well, Mr. Frugal Toque kind of
agrees with the emotional value of paying it off. For me, I'm not paying mine off since it's so small, I have the 'cash' to do it immediately if I needed to, the interest rate is really low, I'm less risk averse, and don't get too emotional.
What I would do in your situation would be to start looking at moving. That would be a huge increase to the 'stache, and you could potentially use the cash from the sale to pay a new place in full. No mortgage, and no big dent in your current net worth. It might be a good compromise. The net worth numbers look good, the monthly costs go down, and you get all of that piece of mind mentioned in the article I linked. If that's not an option just yet, I'd try to sit down with your wife (well...not
your wife), and put some numbers on the emotional value of it all. The emotional part of it all does have some non-direct financial impact. There have been some huge changes to people's health and budget just from the lack of slight stress it brings.
A caveat, though: $2000/month does kind of freak me out personally (for anything), especially with my goal of keeping costs low, so emotion might play a bigger role if I was in your situation...and I only make slightly less than you.
