Why I’m paying off the mortgage while saving for Early Retirement

Why I’m paying off the mortgage while saving for Early Retirement

The paying off your mortgage early vs. investing that money debate has been done to death. Everyone has heard the higher return on investment from the market generally outperforms a standard loan interest of around 3% argument. On the other side, everyone can sympathise with the idea of being completely debt free and having your own home. No mortgage sounds like the best thing since sliced almonds. (that’s the expression right?)

Like a lot of other posts and the general theme of this blog, I can only tell you my own personal experience and what my path is.

I set a goal to have my house paid off by the time our son, Mini Donut, is 16 AND have enough stashed away for a retirement by 45.

I always try to be balanced when I do anything and to not over do something to become one-sided.

Our current savings rate into retirement accounts is ~10% with plans to increase it to 15%+ by the end of the year. We currently have our mortgage being overpaid by $110 a month. Each year when merit increases come out I will bump my 401k contributions by 2%+. Depending on how much is left over we will then increase mortgage overpayment. Since it is always important to have a plan, any bonus or extra income will go to maxing out our Roths. We are combating life style inflation by having a plan and being determined.

After Mini Donut moves out of daycare and into kindergarten we plan to have a much bigger surplus. (MN has very high daycare costs) After that point the overpayment will be capped at $360. That should easily get us to paying off the house in 15 years (don’t worry I have an active Google Sheet that let’s me recalculate any overpayment scheme I can come up with). So with the overpayments capped we will start ramping up savings at an alarming rate.

early vs standard chart

What would have taken us 30 years only will take 18. That is a savings of $44,194.28! Money that will then go into retirement and into college savings.

last payment

What is even better is knowing because we created this plan we will owe $100k less on that payoff date. *warm fuzzies*

I generally like to have my cake and eat it too. I get the comfort of having a house paid off faster in addition to retiring early.

How about you? What does your path to early retirement look like? If you are a homeowner, do you plan on paying off early?

17 thoughts on “Why I’m paying off the mortgage while saving for Early Retirement

  1. It’s crazy how a few hundred dollars a month can cut your mortgage payoff by over a decade! We’re taking a similar approach by continuing to save about 12% for retirement as we pay off our debts by $5,000 per month, and will continue to invest as we purchase our first house sometime next year. Having 2-3 paid-for real estate assets is the goal for early retirement, but we still want to take advantage of company matches and have a diversified portfolio. I look forward to seeing your progress as time goes on!

      1. Any money you’re spending for a mortgage will eventually be spent paying for Medicare insurance, some couples to the tune of $1000 a month and that’s without the scam of dental insurance.

  2. This sounds familiar 😉 Mr. Adventure Rich and I are working towards FI (still don’t have a specific retirement date/age yet), but we are simultaneously saving for FI and paying extra on our mortgage. Our current plan is to be mortgage free by the time our son is a Senior in high school (17 yrs old or so) and before college costs hit. Good luck with the savings!

  3. I paid off my mortgage in Dec 2014 (13.5 years after buying my house) and don’t regret it one bit! Now I can focus on putting as much into investments/401k to try to get to early retirement around 50 (I’m almost 41).

    It seems like the PF community is really divided when it comes to paying off a mortgage early vs. investing the money instead, but you need to do what makes you most comfortable. For me, that means being 100% debt free.

    Sounds like you have a plan in place to get you where you want to be and that’s the most important thing 🙂

  4. Man I do love sliced almonds!

    This is an awesome plan. We are working instead of paying the mortgage to have my wife work part time. Because of her therapist career and high daycare costs, we will come out very close to net even in our monthly budget.

    We do overpay only about $50 a month on our Mortgage. We also try to make it so by the end of the year we will have made a full extra payment on our mortgage.

    I am torn on the pay mortgage vs invest idea. I generally go towards invest but the thought of having the cash flow with no mortgage sounds ideal. In the end we should be on track to retire early and have the mortgage paid a few years early.

    Great post!

  5. I’m right there with ya. We paid off our mortgage before reaching FI. We were within striking distance, but still. How we achieved it was to sell a big house (our daughter just left for college) and downsize to about 1/2 the space for about 1/3 the cost. From the equity we were able to pay cash. That accelerated our early-retirement plans substantially.

  6. Right now we have a 15 year mortgage so I feel like we are already paying it off fast. I still debate with myself constantly about paying more off. I remember just a few years ago how amazing it felt to pay of our student loans.

    So far we are just making the minimum payments. If we can ever get our 401K’s and IRA’s maxed out we probably would start making extra house payments. I like your modest approach.

  7. We bought our current house with cash after selling a property in NY. Best move ever because we had no idea what our job situation would be like. Our “early” retirement was a lot later than yours will be but I think absolutely, you are doing the right thing. The peace of mind that comes with no mortgage is priceless. You’ll find yourself very comforted by it when all of a sudden those paychecks stop coming in.

  8. Your plan sounds solid! And let’s face it, even though there are a ton of arguments flying around against paying off a mortgage (and even not owning at all), living rent/mortgage free and being financial independent on top of that is a great retirement set up!

    We currently own two properties. One we are paying the minimum payment because we don’t intend to keep it after becoming financially independent. The other we do pre-pay by $150/month and intend to keep and later on live in because it is located in a state without state income tax which will make our retirement saving go so much further.

  9. I paid off our home early and I love it. I definitely would not be doing some of the things we are today if it wasn’t for being debt free. I know in my head that investing is technically smarter but psychologically it made more sense for us to pay off our home. Definitely something I am happy that we did.

  10. Haha warm fuzzy feeling indeed. We have two 30 year mortgages which are total bummers but we’re just trying to stash away what we can. The mindset is different if it’s rented out. Before we started renting we pay a lotttt of it off (which was a bad move for us because Amazon stock shot up.) Its not a real problem to have 🙂 if we had a family then we would definitely find internal peace with it paid off!

  11. This is what we are doing at my house, although we’re being a bit more aggressive with the early payment. We will hopefully be done with the mortgage in 3 years(fingers crossed). Our idea was early repayments will work as our “bonds”, we’re 100% stocks in our retirement accounts. We also keep a larger emergency fund on hand since we are pretty nervous about what life can throw at us ( fires, layoffs, extra-early birth super sick baby- true stories)… Besides worst case there’s always a HELOC if we need access to the funds. Which is far from free, but less complex then raiding a retirement account.
    You strategy makes sense to us! Love your post! Great to hear your reasoning and that we’re not alone in the struggle that is MN daycare ;).

    1. ooo I get fearful any time anyone brings up HELOCs. Be careful with it!

      Sounds like you’ve put some thought into your plans! Good luck on your debt free journey.

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