Last week I was reading all about how Mr. and Mrs. Our Next Life paid off their mortgage! Kudos to them. When I read that article, I suddenly felt this sense of urgency. We, too, are focusing on paying off our mortgage. In our household, we really value living debt free. And yes, we know we have the potential to make much more money if we would keep our mortgage and invest our extra cash instead of throwing it against an already low-rate mortgage. We also know that there is a potential for us to NOT make as much money by investing and NOT paying off our low-rate mortgage. And so, the debate continues. Should you invest extra cash or pay off the mortgage?
The Plan – Pay Off The Mortgage(s)
Our plan consists of paying off ALL of our debts. All of our debts includes two mortgages: one on our rental property and one on our primary home. There is only one thing still standing in our way. We still owe a whopping $7,000 on one of our cars. That car will hopefully be paid in full within the next few months. I really wish we could figure out a way to be a one-car family, but so far, it just isn’t in the cards. But if you have any suggestions, I’m ALL ears!
After the car is history, we’re going to hit the rental mortgage, hard. After that is annihilated, we plan to take the monthly profit from the rental income and apply it to our primary mortgage. After that is eliminated, our plan is to save money to purchase a second rental property – CASH. After that, our plan is to save MORE money to purchase a third rental property – CASH. And so on and so forth. We want to build up passive income through rental properties so we have the option of walking away from our day jobs. Woot and Woot!
We have a 3.99% rate on our rental property and a 2.75% on our primary home. Now, before you yell at me and tell me how ridiculous we’re being to want to pay these mortgages off instead of leveraging this borrowed money and investing extra cash, I would like to remind you that there is no reward for having the most money. We want to have plenty of money; we love investing and watching our stash grow. However, we do not want to have a BIG payment hanging over our heads each month. We want our expenses to be as low as possible. We want to be able to easily afford our expenses if we choose to work at the fast food joint down the street. Because let me tell you, some days, that prospect sounds like a dream. And since I’ve worked in one of these fine establishments before, I know how awesome it can be.
After our houses are paid in full, we plan to sit back and enjoy having very nice salaries with very small expenses. We want to enjoy the fact that either one of us (or both of us) could walk away from our jobs to be baristas, and still be able to pay the bills without losing any sleep. And boy do we ever LOVE our sleep! You see, not having these two payments, gives us options. Yes, we could have the same options if we invested the extra money instead – as long as the market continues its upward climb. And these days, that’s anyone’s guess.
The actual return we will see when we pay off these two mortgage is immeasurable. And let’s face it, it’s not like we can’t turn around and pull the money right back out with an equity loan. No, we won’t be totally diversified in our rental properties at first. Our houses are in two different towns and we plan to extend our reach on subsequent rental purchases. Each town is truly a different market. We also won’t have nearly ALL of our money tied up in these houses. AND, we’ll sleep SO much better. For us, it’s worth it. 🙂
Before starting our FIRE journey, I never would’ve dreamed that having a paid off house at a
relatively young age would be a possibility. It never even crossed my worried mind. Why? Because I was too caught up in consumption, and the rat race, and making all the financial and relationship mistakes in the book to realize there was a different path. I love living life against the grain, don’t you?
Related: We Made Our Dream Home A Reality
What would you do? Would you bet that the market would give you better returns and keep the mortgage(s)? Or would you throw extra money at eliminating your biggest expense? We’d love to your from you in the comments! And don’t yell at us! 🙂
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