There’s obviously quite a lot of internet devoted to the ‘should I pay off my mortgage?’ debate. The arguments for and against are both straightforward and compelling. There’s the financial peace argument of paying it off and the rational, mathematical argument for staying invested. After a period of favouring the invest side of the debate I have switched to a pay-off plan. Specifically, until the mortgage is paid off I am going to stop investing in productive assets and move all spare money into the mortgage account. I could pay it off now but I’ve decided to keep the investment account.
With interest rates at these crazy low rates, money is cheap and my mortgage rate is running at below the level of inflation, so there’s a good mathematical reason to pay it off slowly rather than quickly. I do not have credit card, car or any other form of debt to pay off, so there’s a good argument to say I should keep on buying productive assets and let the mortgage run its course.
But that’s not what I’m doing. Here’s my thinking:
Keep pressure out of the system: Because I am now self-employed, I believe it is important not to put too much pressure on the business to produce. The smaller my family’s monthly commitments, the less money the business is committed to providing every month. That’s why I gave myself a dividend recently to chop a chunk off the mortgage, and intend to do so again once a few more invoices have been paid off (don’t make me send in the heavies). One reason I set up the business was to enjoy a bit more leisure time, and if I have a significant hill to climb every month I’ll a) enjoy working life less b) be super-grumpy at home c) risk being less successful in business because I might come across a bit keen (desperate), and nobody likes a desperate salesman like Old Gil here.
Goals motivate: ‘I want to pay the mortgage’ is a very clear, measurable target and is easy to keep in mind and influence my decision when I face an opportunity to either spend or save. Getting rich enough so that work is optional is of course a compelling thought but just doesn’t work for me quite so well as ‘get the fucking mortgage paid off’ as a reason not to buy most of every Pret-a-Manger I walk past. Once the mortgage line item is at zero, then I expect that the race to get to my number (the level of net worth at which I do not need to work) will be very much front and centre and drive decisions in the same way. As Reeves and Mortimer would say, It dunt really matter whether I save or invest but I just know that for me, paying the mortgage is the most compelling of all the financial goals I could set.
Security and satisfaction: I didn’t come from much when it comes to financial comfort, and there is as a result a fairly deep seated draw to getting the risk of losing my home off the table. Shit can go wrong, and if the house is paid off shit can go less wronger is my how this educated chap likes to think of it. I’ll also get a nice warm fuzzy feeling inside that my efforts of getting to be quite good at my job allowed me to secure my family’s future by nailing down the asset. I am very well aware that there are more tax efficient ways of managing this debt, paying myself and generally managing my finances but remember we are about happiness and physical health around here as well as numbers on a spreadsheet,; all things considered I believe that the best decision all round is to pay off the mortgage.
I’m not out of the market: I could pay the mortgage off today, but I’m choosing to keep money in equities (mostly index funds and some individual shares) and therefore I believe financial experts would say I’m hedging. If the markets fall, I get to be smug that I didn’t keep piling in, and if they rise, I get to be smug that I kept an amount in the game and enjoyed my share of the rise in values (while of course trousering the dividends in the meantime). And if it’s good enough for this guy, then it’s good enough for me….