An interesting question was left on my blog recently, and for the past few weeks I’ve really been thinking about how to answer it. Because the truth is, sometimes it’s hard to tell.
When you make a decision that was right for you *at that time*, it’s hard to then regret it later just because new information is available and/or situations changed. Especially when big ones are involved like slashing debt that can take years, if not decades, to really come full circle.
Here was the question left by fellow blogger Evan on my last net worth update:
With income slowing (hopefully temporarily) do you regret the 2Ks into the mortgage vs having it in your liquid or stock account?
For any of you who’ve been around the past couple of years, you’ll know I was hell bent on paying down our mortgage every second I could by throwing at least $2,000 *extra* towards it a month. I had an epiphany that once you have no mortgages left, you’re pretty much living there scott-free (minus property tax and maintenance, etc, etc), and then I wouldn’t have to work so hard/bring in more money since I’d have essentially wiped away $1,800 in mortgage payments going forward. A closer step to “financial freedom,” if you will.
Well, this “mortgage killer plan” lasted about 18 months or so at full throttle – knocking away a good $35,000+ during that time – where it then came to a screeching halt once priorities and finances started changing. Like wanting to finally move somewhere new and OUT of that house we no longer loved, as well as business income not being so hot anymore too (as well as new baby costs, change of employment w/ my wife, etc etc).
Now here we are, almost 2 years from the day I first posted about this plan, and the question of regretting it is now up for consideration… And what a whopper of a question it is! After reflecting on it for a while though, I think I now have an answer:
No. I do not regret it. I would have done things differently knowing what I know now if given the chance (wouldn’t we all love that luxury?), but at the time it was definitely the right move for us and our situation. We had an excess of cash coming in every month, our emergency fund was nice and plump at $70,000’ish, and we were maxing out our retirement accounts as much as possible. So the next logical step for us was to start paying down that nasty underwater mortgage we had, especially while my new found excitement for financial freedom started creeping up more and more as time went on.
(If it isn’t apparent yet, I live my life/finances more emotionally than many do, and thus whatever I’m “in the mood” to do/work on, the more I usually accomplish by following it :))
So no, I don’t regret it, but if I could transport back in time I probably would have just banked it all and went on my merry way. Considering that’s our main dilemma at this point in the game (or rather, I should say cash flow). But we don’t have the luxury of fortune telling usually, so we do our best with what we have at the time, and then go about our business hoping we made the best choices. If I started regretting every little thing I did (or, every BIG thing even) I highly doubt you’d enjoy reading this blog anymore ;) And I’d probably have had a few heart attacks by now too!
Anyways, I hope that helps some of you out there who may be in similar situations yourselves. While it’s nice to think about the “what ifs” and going back in time to change things, it’s best to just suck out those lessons learned real fast and then high-tail it right outta there. None of us are invincible from making bad decisions no matter who we are – even finance bloggers.
I bet if you were to ask me this 10+ years from now when I’m nice and retired too, I’d smile and nod and say it was one of the best decisions I’ve made yet ;) Some decisions need more time to play out, and there’s worse things to apply $35,000 to than a chunk of your debt!
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I wrestle with this question almost daily. That is, with interest rates in the 3’s….would I be smart/wise to refinance…locking in a CHEAP rate for 15 to 30 years. Then take the proceeds and invest in a mutual fund that has historically provided yields in the 10% range or stocks like AT & T which provide a generous yield. Working these scenarios out over 5…10…15 years make this seem like a no brainer. BUT there is something to be said for having no mortgage and the great feeling that comes with it. Your thoughts?
There is something very freeing about not having a mortgage but if your loan is in the 3s, you’re better off investing the money and getting the difference. It also leaves you with more liquidity in the event you need it.
That said, I wouldn’t knock someone for trying to pay down a mortgage loan as fast as possible. Not everything is life is about numbers, you know?
To me all finance decisions have two sides to it – the emotional one, and the “factually correct” one. Most people go with the financially smarter/correct one (which would be to invest the money instead of paying down the mortgage), while I tend to side with the emotionally-friendly one :) As Jim notes, either route is generally fine in the end, and the point that you’re THINKING about it in general far surpasses the average person ;)
If you’re asking me though, my vote is to always go with the one that FEELS the best as I believe you’ll be much happier in the end even if you technically “lose” a few dollars (or a few hundred/thousand). Who knows what will be going on 20-30-40 years from now, and if you have to wait until *then* to be happy, it’s not worth it in my eyes.
It is illogical to work towards something that is meaningless while ignoring things that are important to you just because the math says one is “better” than the other. The best answer is to marry logic with emotion.
Take all that emotional stuff (hopes, dreams, goals, lifestyle) and use logic to make it happen. Every question of “Should I do X or Y?” boils down to this in the end. I should invest my money because that’s where I’d get the best return. But that’s not the most direct route to accomplishing my most important goals. Right now, my number one goal is to get my husband into a new, self-employed career. To do that, we need to restore and establish his workshop and prepare for a reduction in income. That too goes against the “best” thing to do, but health and happiness dictate otherwise. So my number one priority right now is cash, cash and more cash, regardless of interest rates or investment returns or anything else. It’s not the “correct” answer, but it is the “right” one.
Paying down your mortgage made sense. You were in a house that was underwater and you wanted to move. Decreased expenses and better cash flow would also be a huge benefit to your situation. There wasn’t anything higher priority that wasn’t already taken care of, so that’s where your extra cash goes. The situation changed and now those higher priorities (a balanced budget, retirement, etc) are no longer being taken care of. Of course you pull back and work on the important stuff again. Life happens, priorities change and the only thing you can do is work as hard as you can at what is most important right now.
I would say that jestjack hasn’t given us enough information to answer his question. If he considers his priorities or goals, it might become clear. Maybe he’s not sure what he’s working towards. In that case, I would say he needs to figure it out before he can make a good decision.
Damn that was a solid answer! Loving this – “The best answer is to marry logic with emotion.” So so true. Thanks for sharing your personal story with us and I’m sending lots of good vibes over to your husband’s way in hopes his business explodes :) You’ve got a great head on your shoulders!
Good on you for not regretting your decision. I think you made the right decision for you and you’ll be happy about it when you can sell the house and not have to pay the bank money at closing.
I personally debate occasionally about paying down the mortgage, but then I remind my logical side that inflation will make my mortgage payment much more affordable in 10 or 15 years :) I need to invest the extra money we have after we’re done destroying my wife’s student loans or maybe find something else we want to spend it on. We have an idea, but we’re a LONG way away from making any decisions :)
Hah! That’s true about inflation – I always forget to think about that too (I’m very bad at *future* stuff, but awesome about *current* stuff).
We paid off our first (starter?) home and it was actually a little counter productive because it made the numbers trickier for renting. When you own 30% of a house and are still levered, the rent is offset a bit by the mortgage so you don’t pay income taxes on it and the renters “pay” for your house. When you own 100%, you pay taxes on all of the rent and it reduces your ROI even more to the point where I wasn’t willing to deal with the hassle of renting out our home for 6-7% (when I could put it in an index fund, not worry about renters, and get the same ROI and *much* better liquidity).
Thanks for that perspective Jim. I own a rental home and it has a 3.5% mortgage. I wasn’t planning on paying it off early but this cements that idea.
Kinda reminds me of a friend who once told me how upset he was with paying off his $500k house in one year (!!!!) cuz the market then turned around and he “lost” a million dollars from it (cuz he would have invested money instead, and then it would have tripled). I told him it was a good problem to have, but he didn’t seem much consoled by it ;)
You can’t sit and regret decisions like that, it does no good. You can’t go back anyway. You paid off a nice chuck of your debt which will save you a lot in interest payments down the line (or it will help you own more of the home if you sell).
Personal finances are “personal.” Debt is more than just numbers, it’s an emotional burden as well for many. Do what’s best for you and move on. I’ve certainly had my share of financial moves I could question but the best I can do for myself is look back on them and make sure I have a better understanding going forward.
Amen brotha. Hope to catch up this week!
No need to cry over spilt milk man. Or money paid towards debt. If you’ve learned a good lesson about money in the process then that makes this a super valuable experience. Debt paid down and lesson learned. I’ve honestly thought about paying more and my mortgage rate is in the 3’s. I want to be investing (in real estate and the stock market) more before going after the mortgages though.
That takes some cajones too to dive into that stuff. I’m slowly going the opposite way (don’t want an “attachments” out there and keep my life nice and simple) but I can totally see the appeal of it all (rental properties/etc). Right now our rental loses money every month so I’m “in it” but not really, haha… Maybe in 10 years when it turns to positive cash flow I’ll be singing a new tune ;)
We have paid extra toward our mortgage a while and were really knocking it out hardcore. Then, Greg made a job change that necessitated we sell our house and move. People have also asked me if I regret prepaying our mortgage and if I wish I had that cash to put down on our new home.
I don’t regret it at all. I still had 20% in cash to put down on house #2 so it didn’t matter if our house sold before we bought a new one. And, once we move, I’ll probably start prepaying our new house as well. I don’t want a mortgage!
It’s gonna feel good without one, that’s for sure!!
We made it through to the other side, where we’re only on the hook for condo fees, insurance and property taxes. It’s pretty darn sweet and also means we don’t have to bring in as much cash. Maybe future you will be really happy that 35K was paid off because you’ll be able to do something else!
YES! Exactly!! That’s the best part of it all actually – the fact that you then don’t NEED as much money! Yes you may not have as many sexy investments in the market, but now you’ve nixed the biggest expense of our lives – potentially forever. And there’s some major power in that no doubt about it. Congrats! :)
No way to predict then, where you would be now. There are times when I doubt our $2200 a month debt snowball payment, but keep thinking of what it will do for my family long term and that keeps me motivated.
My husband and I talk about this ALL the time! Since we’re military, we’re only going to be in our house for 5-6 years. While we do understand the value of having built up equity in our home, a super aggressive mortgage payoff plan may not be right for us…at least not right now. ;)
I’ll agree. Even home ownership in general may not be the perfect choice for the military life ;) Being a Marine brat myself I can say with the utmost certainty I should not have bought my house when we did – it’s very hard for me to sit still!!! Haha…
I love that you don’t regret it J$! Like Glen sort of touched on, you killed a sizable amount of debt you were carrying on your mortgage and saved yourself a chunk of interest that you won’t have to pay now. Ultimately, this should get you closer to where you want to be in the future, so I say good for you!
Like Glen mentioned above, they call it “personal” finance for a reason. We can all look back at past decisions and wish we had done things differently but what you were doing made sense at the time and it was productive…you paid down your debt and saved interest, which is better than blowing it on something silly.
There’s nothing we can do about the past except move on, making the best decision we can, knowing what we know NOW. For years, I didn’t want to pay down our student loans because of all these “what ifs.” But it turned out that the money I didn’t use to pay down the loans just got spent on things we really didn’t need. I regret that, but the best I can do now is move on. So, we paid off a loan earlier this year and then I got laid off. Do I regret putting the “extra” money into the loan? NO WAY! Now we have fewer liabilities each month. I’m going to guess that, going forward, looking at new houses, you will be happier to have gotten that principal down.
Dang, sorry to hear about the lay off – that’s never fun :( But great job killing some of that debt!! I agree it feels good to have less of it on your plate and hopefully we all have none of it down the road so huge life changes don’t screw up our financial lives much. Keep hustling!
Great post, man. When I was unemployed the first 6 months out of college, I wonder the same thing about a couple trips to the Bahamas and Disneyland we took while the wifey and I were still in school. But I’d never trade the experiences we had and it helped me realize that unless we’re on the street and begging for food, life is still pretty darn good. It’s good to struggle every now and then so we can appreciate the good times :)
HAH! I literally JUST told someone that last night! Though it was more about being successful in business :) I told him I was getting nervous cuz I wasn’t having too many “failures” with my stuff that you always hear entrepreneurs talk about, and I knew my time was close, and then sure enough BAM! My income goes down and two projects somewhat fall flat, haha… At least in terms of money – which of course is the main factor/reason for a business. So I def. got what I asked for, haha… and you’re totally right – it helps put things in much better perspective :) I needed it.
Being debt free is worth the hassle, especially if you do have a good emergency fund if things go bad. I wouldn’t want to have debt one more second than I could, if I paid it fast, so I don’t see it as a bad move at all :)
I think the single best financial decision we’ve made is paying off our mortgage. Of course rates were a lot higher when we were making extra payments than they are now. Still, as you point out, at least for some of us, the feeling of being debt-free is priceless, meaning I can’t put a $ value on it, but it’s huge. Every decision a family makes is affected when they don’t have to factor in big monthly debt payments.
I think regret is a strong word, but the fact that you now suggest that you’d do things differently shows something of importance. For years, I had been suggesting that people bank away the money, because once you give it to the bank, it’s almost impossible to get back (HELOCs aside). It’s better to have an even cushier emergency fund because we really don’t know what’s going to happen in 2 years.
By banking the money instead of giving it to the bank early, you give yourself even more financial freedom… protecting yourself from the obligation of future mortgage payments. I would think this would be emotionally comforting. The beauty is that if get to the point where you really want to get that mortgage off your back, you can always just make a big lump-sum payment from this banked money. Your emotional needs can be met either way ;-).
I think this is a case where you can think of financial freedom differently (i.e. a bank of money giving you freedom from months of mortgage payments) and come to a conclusion that gives you more flexibility to withstand a hardship.
Actually, I totally agree with you! I go in spurts of “save save save” to feel free with a big ass cushion of cash, and then turn around and “pay pay pay” debt off to feel more free that way too ;) So I totally get what you’re saying there. And really the only reason we went head first into the mortgage paying route was because we already *had* a large chunk of money in savings, so it was an easy call to make back then. And also a very good problem to have – something I’m now missing quite a bit ;)
Glad you see it. The idea is to trick yourself to be in the “save save save” mode and put far enough away that you won’t be tempted to grab it.
We had a similar large chuck of money in savings and we decided to put the extra money into investing in real estate properties. The difference is that I felt secure in my wife’s military income (and her ability to earn money as a pharmacist if that goes bad) with my income as a solid back-up… combined with the large chunk of money.
That def. helps :)
As a renter, I don’t give much thought to mortgage debates, yet. I do plan on becoming a homeowner in the next three years, so I’ve started to read more and more about the merits of having one vs. paying it off ASAP.
Frankly, I have no clue which I’ll prefer until I’m in the situation, but I do really hate the thought of carrying any sort of debt. It will work against my basic instincts to keep from paying off a mortgage quickly. Then again, I do understand the desire to invest the money that would normally go towards paying off a mortgage quickly.
Maybe you’ll be fortunate enough to pay less with a mortgage than you are for rent ;) And then you can go on your merry way just as you’re doing now with financial goals, only with a bigger emergency set up for maintenance stuff?
This is something that I have been thinking about. Right now, we are not throwing any extra towards our mortgage, since we don’t plan on living here for more than another two years. However, with our next house, should we pay it down super fast? I don’t know!
OOf an interesting question. I think you were right at the time and definitely shouldn’t regret it! I think we’ll pay extra towards out future mortgage, but not 2,000 extra a month!
Do you think that if you had the $2000 month available to you in liquid form right now, that it might enable you to postpone making any necessary changes–that not having those funds available forces you to make the hard choices to bring your expenses in line with our current income? In my experience, we are better off in the long run, to make those adjustments sooner, rather than later.
hmm… that’s a great question you pose. It would def. ease up some stress and worry, that’s for sure, but in all honesty it would probably keep me a tad bit lazier and not hustle *as* much, so in that sense it’s probably good indeed it happened when it did ;) I tend to keep things pretty much as-is when times are good, which of course isn’t the smartest thing to do. I should have been changing and tweaking the entire time *knowing* my time would come where $hit would hit the fan! Cuz good things don’t happen forever, that’s for sure.
It’s not like it was a dumb decision or anything to pay off the debt. Even if you don’t do the “optimal” thing every single time (which is pretty much impossible), it’s all about doing good things consistently. Plus you never know, business might pick up soon…
Great choice. Looks like your decision has worked out in the end. I don’t think too much about the what if scenarios either. I’m a bit younger than most finance bloggers and I’m more focused on growth than cash flow so I’ve been heavily investing instead of paying down my mortgage. If I were to go back in time I wouldn’t change a thing :) And in 10 years from now I should have a million dollars if my plan works out.
Ow ow! You should make sure you join my Millionaire Club then if you haven’t already. That way we can celebrate together when you hit it ;)
Dude, the math says you did the right thing! Interest is all front-loaded on the mortgage, so you’re getting ahead of this thing! I feel the same way right now as well. I dropped $3,000 on our student loans a few months back, and then my income dropped. UGH! Now I’m wondering if I should have banked that cash or not. But it’s gone, and it went toward something that is going to save me money in the long run, period. No room for regret, that only slows down the hustle!
Haha… it sure does… I like thinking of it that way ;)
Btw, will I be meeting your in person finally this week at FINCON? Hope so!
Yeah buddy. I’ll be landing Thursday at 5:30pm.
I’ve been thinking about this a lot lately. I am paying back consumer debt, but I have been wondering whether to throw my money onto the mortgage or into an account when I am done with that. I think I will probably beef up my (close to) liquid assets first and then throw large chunks at the mortgage because I don’t want to become tapped out if something comes up.
That sounds like a good plan :) When it’s all “extra” money on top of what we need to live on/save, it’s always good to be putting your money to use. Whether it be in investments or emergency funds or mortgages, etc. Which is a HUGE advantage to taking home more than you owe every single month – it just compounds your financial goals!
Looking back, it doesn’t look like a bad decision to me. Paying off the mortgage is effectively a fixed rate interest earned. Perhaps you could have earned more in the market, but you have the associated risks involved.
As you say, just because it may not be optimal in hindsight, it doesn’t mean it was the wrong decision.
Yeah, and I already maxed out what I wanted to be putting into the market back then so that was already off the table. The way my extra money works is:
1) Have enough in cash/emergency fund
2) Max out SEP IRA
3) Max out ROTH IRA
4) Max out Wife’s ROTH IRA
5) Pay off mortgage or Invest in risky business or gamble it all away
Haha… #5 is pretty much the perfect world where you’ve done all the “important” stuff already, and now it’s all gravy ;) And usually towards the end of the year too when you’re in a jolly ol’ mood due to holidays coming up/etc. But either way a pretty damn good problem to have!
I think you made a great decision to throw that $ at the mortgage. It’s really easy to put that extra $ aside, fully intending to throw it at the mortgage in one lump sum, only to see that it slipped thru your fingers for what, at the time, appeared to be a necessity. Maybe that wouldn’t happen with you or others who are so disciplined re: $, but for many people, kids have a way of making things look like necessities, when they’re really just wants.
We’ve lost our butts twice in the market and after the last one, we decided to kill our mortgage (not quite there, but working on it). Every time we pay more on the mortgage, we get happy ’cause no matter what, we know that’s money well spent and it’s not going to crash on us.
Good for you and your family!
Indeed!!! It definitely makes for a SOLID outcome without any drama whatsoever :) Gotta love that.
We are paying extra on our mortgage, but not that much. Anytime you are paying down debt is a good idea. Anyway, I’m sure your cash flow will pick back up soon and I’m sure you won’t regret paying extra. It’s great to pay down more in the beginning too.
Even with the change in direction, I wouldn’t regret the decision either. That money paid down additional principal so you are saving money on interest over the remaining life of the loan. It might not be as much as what you could have earned if you invested it but it’s a lot better than blowing that money on something stupid.
You mean like a life-sized Justin Bieber doll? ;)
I really needed this post today! We have quite a bit of extra money to throw at the mortgage this month. We’re trying to decide whether to save or put towards mortgage. The comments were all very helpful. I think we are going to continue as planned and throw towards mortgage! :)
Awesome! Glad you found the post helpful. Funny how one comment someone makes can spur such a great conversation :) Thanks for stopping by!
It’s easy to look back at what happen and wonder about the extra payments. What if the market dropped 40% instead of going up then the conversation would be different.
I agree with you that it was the right move at the time for you. It’s hard to buy a house if you buy one at the retail price that’s already fixed and cleaned up. We’re lucky because we’re working class so we were used to lower liver conditions and willing to buy not as nice of a house. Our first house we hauled about 8 trailer loads of garbage to the dump. We did pay it off early because our rule when we bought the house was that it had to be in the price range where only one of our incomes could buy it in case one of us got laid off. Then we took out a HELOC and have used it over and over to carefully buy rentals at a good deal in good areas with good rent. (Rentals will be our retirement job because we don’t want to be poor when we’re old. Currently the tenants are paying our mortgages.) None of the rentals were turn-key. All of them needed work and repairs, like siding, roofs, windows, floors, toilets, etc. along with extensive garbage hauling, cleaning, and deodorizing.
Good for you on figuring out the rental market! It still scares me today even though we technically have one ourselves (we’re renting our old house while we rent elsewhere), and I don’t know if I’m cut out for that stuff. I wish I were though as there’s huge potential for cash flow and retirement money as you say in it :) Keep hustlin’ my friend!
In the wise words of Wu Tang Clan: Cash rules everything around me!
I do prepay some mortgage every month for emotional reasons, but only $500. I’m doing what Lazy Man suggests and building up a cash account so when the balance hits my mortgage balance I will have the same feelings of freedom, but the liquidity as well.
Haha… oh that Wu Tang.
While you likely could earn more investing separately, paying down your mortgage has a guaranteed rate of return (namely, avoiding interest on the amount you pay down). There is something very freeing about not having debt, even if it is at low interest rates. However, aggressively paying down a mortgage while you have credit card debt or no emergency savings is not prudent. In your case, you had emergency savings and retirement contributions. So paying extra was a great idea. Of course there is that extra factor of your business type. Sometimes the extra cash is nice to invest in your business as it could turn more profits as a result, which would allow you to pay down mortgage debt even quicker. Like you said, you could have done less productive things with your money. It isn’t like you went out and bought a boat that you only used once!
Or a Vegas binge ;) Though at least I’d have the fun memories with that one, haha…
I’m with you. I don’t regret paying down any principle. It feels great to be that much closer to being debt free!
I’m looking forward to yours and other’s Fincon posts!
Sucks we missed you this year bud – you and I haven’t had a good chatting session after all these years. We should change that :) Skype some time?
Any amount that goes to paying off more debt is nothing to regret about it. After all aren’t we all working for that financial freedom we all visualize in the near future? So that’s a whole lot of step closer to that goal.
The reason I asked the question is exactly the situation you are in now. I have thought about it as well and all I can think is that if I ever need cash before it is paid off I can’t get it out of my walls.
I think your readers are too loyal and nice! Of course taking that extra 35K and putting it into your house is a better call than lets saying burning it but the question is…whether you should have put it in cash or the market or your mattress vs giving it to the bank very early.
Think LM said before but maybe regret is too harsh a word but nothing wrong with saying (like you did) that you would have made a diff decision if you could it again…isn’t that what learning is?
Yep, you got it brotha. I’ll def. be thinking twice before paying more off in the future if/when we’re fortunate enough to be able to have these decisions to make again. We can only do the best we can at the times presented to us, and back then that was the best I could do. But the future me will do even better :)
Thanks again for chiming in and asking this question a while ago – gave us all something to think about.
Hey J$, I found this immediately AFTER I read your mortgage pay-off plan… Lol funny how that happened!
What’s your opinion about paying off mortgage ASAP now? Is it still a wise decision or is it better to just pay your monthly mortgage and save/invest any income surplus? (You might have answered this in the comments section.. Sorry if I’m repeating :P)
Good timing! :)
And I can’t believe it’s been two years since posting this up too, wow… the power of time is incredible, isn’t it?
To answer your question though, I’m still very much into saving/investing more $$$ than paying down mortgage debt, but that’s mainly because I hate home ownership :) If I had it my way I’d be mortgage-free and just invest all our $$ into index funds from now on! But until we sell it it is what it is…
I don’t think there’s a “wrong” way to do it though generally speaking. Paying off debt and investing money both help grow your wealth so I’m all for both. I do think you make more money in the long run by investing than paying down your house, but we all know personal finance is just as much personal as it is about the numbers.
So the answer is – they’re both good! But it only counts if you DO one of them :)