Yesterday, I had a Eureka moment. I looked at what we could save over about three years until I am ready to FIRE and what the return on that would be at 4% and 7% and realized that the amount of return over so short of time was not worth the risk COMPARED to the certain return of paying off the mortgage. Here are the facts:
Principal: $220,000
Fixed Interest rate: 2.75%
Current payment each month: $2,250 of which $1,334 was principal last month, and $441 was escrow for insurance and taxes
Estimated additional principal each month to achieve our goal: $5000
Remaining $'s per month for all household expenses (after mortgage): $4,049 (I know that is a ridiculous number, but we are only 6 months into this mustachian thing and on a steep learning curve).
You probably think that paying off an interest rate of 2.75% vs. investing is sort of dumb - I bought into this point of view for the last 6 months. BUT, there are some big upsides to paying off the mortgage for my family:
--By setting a "radical goal" that has tangible impact on our lives, I have motivated my wife to join this plan. Prior to this, when we were scaling back spending, she was only half-heartedly on board and spending has been a bit of a weekly pillow fight for us. Yesterday, after I proposed this idea to her, she started writing a budget to see if it was possible!
--By reducing spending to achieve this radical goal, we REDUCE SPENDING which as you all know is a double gain.
--By eliminating our mortgage, we reduce how much money we need to draw every month in retirement.
--The money that is left over in our budget after making our massive mortgage payment each month is 100% available for our enjoyment - no more feeling like every dollar is a dollar that could be better used (within reason).
--Having the house paid off is tangible security against crisis.
What is the down side - we give up the opportunity to watch our money tumble about in the wash cycle of the stock market for the next 3 years and perhaps pull $15K to 45K in growth (or watch same amount of shrinkage) from the back pocket of our jeans. Anyway, I am thrilled to see my wife get excited about this undertaking. I am glad to hear your thoughts - probably something obvious I am missing, but 20 hours into hatching this plan from my eureka moment, and it looks good to me.
Thanks, -Ap.