Why I Believe Paying Extra on Your Mortgage Makes Sense

I feel like a broken record, but I’m going to say it again. There is no one-size fits all personal finance plan, but I believe in making extra payments on your mortgage IF you do not have other debts.

 This goes against the beliefs of many financial experts that you will talk to, because from a numbers perspective it does not make sense. Especially with mortgage rates as low as they are right now. If you take the extra money you would be paying on your mortgage and invest in investments that follow the S&P 500 the historic annual average is around 10%. Keep in mind, that you also have to consider inflation (~2%) and the cost if you are paying someone the manage your investments (~0.5-2%). The Coles notes version of all of this investment talk, is that almost certain you will earn more interest off of the money you invest, than the money you save by making extra mortgage payments. So, from a number’s perspective, it does not make sense to make extra payments on your mortgage. Stick with me though, I promise this article has a point!

One thing the numbers can’t include is peace of mind. You can’t put a price on having no mortgage payments. Having personally been through a major financial curve ball in my life, with an unexpected job loss, I can say that I am grateful for every extra penny we put towards our mortgage. It gave me the freedom to invest in a business that I love. About 6 months after I lost my job, we had paid off the larger portion of our mortgage (it was split, part fixed, part variable). That got us to the point that we could cover all of our household expenses with my hubby’s income, and also start to save each month. It gave us breathing room and so much peace of mind.

If this had not been the case for us, I firmly believe that I never would have started my business. I never would have had the time to focus on what I was meant to do, what my passion was. I very well could have been back in another J-O-B that involves shift work, and lots of stress. Thinking about it now makes me even more grateful to be able to pursue my passion every day and change lives. I want this for everyone!

I also want to be clear, that I am not saying don’t invest. I strongly believe in investing AND making extra mortgage payments. Especially if you have an employer match. Don’t lose out on a huge employee benefit! Find balance between the two.

Things to have in place before you start making extra payments on your mortgage:

1 – Your other debts paid off.

2 – An emergency fund with 3+ month of your ‘emergency budget’ expenses saved. Check out my blog post on emergency funds HERE!

When you get the two things above completed (and I say when, because know that you can), build a plan that fits your financial goals. Maybe it involves the peace of mind of paying your mortgage off faster and maybe it doesn’t, but I want you to be able to see the flip side of what you are probably hearing from others.

 Next week I am going to share the exact steps that we took to pay off our mortgage early, so stay tuned.