Photo Credit: Christian Koch
Buying a home is an exciting time in a millennial’s life.
There’s the moving, the unpacking, the slow discovery of your home’s quirks. But make no mistake, it’s also a big responsibility. Now that I’m a homeowner, I’m responsible for everything about this home. There are the little things, like ensuring the garbage gets picked up or emptying the dehumidifier, so I don’t get mold in the basement. There are the medium things like making sure the slight dimple in the roof gets fixed and hounding the roofers until they show up.
Then there is the big thing.
You know what I’m talking about.
The Mortgage.
That capital “M” was not a mistake. Whenever I think about The Mortgage, it’s always capitalized, because it’s a massive, hulking presence in the back of my mind.
So far on my home ownership journey, I’ve made exactly one payment on my mortgage, which had an original principal of $248,832. My monthly payment is $1,089, and every payment reduces the principal by about $615.
As someone who has traditionally been very debt averse, I seriously considered paying down this mortgage quickly. I briefly thought about Vanessa’s plan to pay off her mortgage in three years, and Sean’s blisteringly quick mortgage payoff. Being mortgage free? Definitely appealing.
While I was caught up in the idea of this potentially mortgage-free existence, I did the math to figure out just how quickly I could pay it off. Let’s have a look at those calculations.
First, how much could I afford to pay towards my mortgage each month?
Fortunately, I have a pretty good frame of reference for the amount of cash I can come up with, if pushed.
Over the past year, I saved most of my spare cash towards a home down payment. Over that period, my average monthly contribution to my house fund was $1,958. For the sake of speculation, let’s assume I have the same amount available every month to put towards paying off my home, on top of the regular monthly mortgage payment.
Now onto actually paying down the mortgage.
My mortgage offers 20/20 prepayment options, which means I can pay an additional 20% per month on top of my regular payment, plus an additional 20% lump sum payment once per year.
Let’s assume that the very first month I obtained this mortgage (last month); I started paying it off in earnest. The first thing I would do is add 20% to my monthly payment. That would be an extra $217 per month. But what’s a girl to do with the other $1,741? I’ll put that in a savings account, and throw it at the mortgage at the end of the year. At the end of the first year, (July 2017), I’ll make a lump sum payment of $20,892, and continue on this path until the mortgage is gone.
At this rate, I’ll have my mortgage paid off by July 2024, or eight years from now. That’s without switching to weekly payments or assuming I could gradually pay off a little more every year as I earn more. Even factoring in things like increased mortgage rates after the first five years, or me taking two years off for childbearing, I could still have this mortgage decimated in ten years.
Imagine, living mortgage free at age 36. Kind of a great thought, isn’t it?
But I’m not going down this road. I’m not going to pay my mortgage off as soon as humanly possible, for a few reasons.
Cash is King
First of all, I’ve been feeling quite vulnerable since I had to fork over $33,000 in cash to my real estate lawyer to pay for this place. I didn’t realize how much I had come to rely on my house down payment as an extra security blanket, and now, I miss it.
I plan to stash some extra money to ease the feeling of relative cash-poorness I have right now. But I won’t be keeping it in savings.
Time to Invest, For Real
It wouldn’t make sense to stash that cash in a savings account. Given the terrible interest rates on savings accounts right now, I’d be better off using that money to pay off my mortgage. No, the only way I’ll get a decent enough return is to invest it, and that’s what I plan to do.
A few weeks ago, I opened an investment account within my TFSA, and named it “undesignated investments.” This money isn’t for my retirement or anything particular; it’s just…money.
I plan to contribute to this account until I max out my TFSA. I know that I’ll get a far better return by investing this money than I would by paying off my mortgage. It’s basic math, and, more importantly, it just makes sense for me right now.
Remember That Whole Life Balance Thing?
And the biggest reason of all: I’m tired. I’ve had enough of paying off debt. I’m sick of saving like a mad woman. I’m emotionally over devoting every spare moment of my life to earning more, paying off more debt, and saving more.
I know it helped me get to where I am today, and I’m grateful for my ability to stick it out and make it happen, but it’s time for a break.
Even though the aspect of my personality that drove me to achieve those things is itching to pay off my mortgage, right now I’m forcing myself to take a beat, and attempt to live a more balanced lifestyle.
I’m still going to save between 35 – 50% of my income every month, but I’m not going to fret about spending money on renovating my home, or taking a vacation, or buying myself a new desk.
Balance with my finances is something I’ve been looking for, and I don’t think I’ll find it by questing to pay off my mortgage in ten years.
*Sidebar: A year from now, after I’ve sufficiently rested from my ridiculously intense financial regime (and stashed a bunch of cash), I could be singing a different tune. This is what I’m at now, in this moment in time.
Are you planning to pay off your mortgage early?