Hello, my wife and I are considering aggressively paying off our home mortgage. We currently owe $140K at a 6.25% interest rate. Together, we earn $150K gross annually. We’re also thinking about selling a car, which could reduce our mortgage balance to $120K. Our goal is to eliminate debt early, increase our financial flexibility, and save for future goals. Is aiming to be debt-free in three years a realistic and smart goal given our situation? Would love to hear your thoughts!
Do you have at least 9 months of savings for emergencies? If yes, and you can maintain your lifestyle, then it might be feasible. However, with a $150K income, a three-year payoff is ambitious. Extending the term might allow you more financial breathing room to enjoy life.
It’s hard to give a solid recommendation without knowing your other expenses and savings rate. Have a detailed discussion with your wife about your finances before making a decision. While being debt-free improves cash flow, consider if these funds could perform better if invested.
If your investments can exceed your mortgage APR, consider investing the extra funds. Historically, the S&P 500 has returned about 11% annually, well above your mortgage rate. A financial advisor could provide personalized advice for your long-term wealth strategy.
@Milo
Remember, the stock market was flat from 2001-2010. If a similar situation occurs, paying off the mortgage might be more beneficial than achieving minimal returns.
I paid off my house in less than five years. The peace of mind from being debt-free has been fantastic.
Assuming you’re debt-free otherwise, and have an emergency fund, start making extra payments towards the principal. This approach allows you to also invest and save.
Yes, if you can clear the debt in three years, go for it.
This might not be the best idea considering the opportunity cost, especially at a younger age.
If you can maintain an emergency fund for 5-7 months, and being debt-free is a priority, then it’s a good plan.
Consider using a mortgage calculator app to see the impact of extra payments. Focus on cutting your debt by 50% first, then reevaluate.
What’s the remaining term of your mortgage?
With diligent spending and living below your means, especially if you don’t have children, paying off your mortgage in three years is achievable.
After paying it off, consider renting out your home to cover a new mortgage. This strategy generates passive income, leveraging both good and bad debt effectively.
Always maintain a sufficient emergency fund. The bank won’t consider your extra payments favorably if you fall behind. Losing a job without the ability to refinance could put your home at risk.
Paying off your mortgage early could be a strong start to building wealth. Just ensure you’re also investing for retirement and have an emergency fund.
Consider investing in the S&P 500 instead. The returns are generally higher than the interest saved from early mortgage payoff, and the funds remain liquid, offering financial security.
Keeping money liquid is more beneficial than locking it away in home equity. Think carefully about the benefits of having accessible funds.
Invest the money instead. You can use the profits from your investments to pay off the mortgage faster.
You’re in a good financial position. Don’t stress too much about paying off the mortgage quickly. Enjoy your life, maybe even start a family or treat yourself to something nice.