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Why am I not paying off my mortgage sooner?

A homeowner has no plans to make additional mortgage payments anytime soon.

When my husband and I recently sat down to refinance our mortgage, we were pleasantly surprised that our remaining balance was lower than expected. In fact, we analyzed a few numbers and figured out that if we were to make an effort to put some extra money into this loan, we could probably pay it back in the next seven to 10 years, as opposed to the 15 year term. that we had looking to refinance.

The idea of ​​being home debt free within a decade is tempting, and if we were to pay off that mortgage sooner, we would save a lot of money on interest. But even so, we ultimately decided not to pay off this loan any sooner than planned, at least not yet. Here’s why.

1. We got a competitive rate

Assuming our refinance ends (it’s still in progress at the time of this writing), my husband and I are looking at a mortgage rate well below 3%. Granted, this matches current average rates, but it’s also an extremely low rate to pay. It’s so low, in fact, that we think it’s worth paying the interest on this loan and retaining the flexibility to keep more of our income to ourselves. You never know when something in the house might break or when another unexpected bill might pop up, so we’d rather not put pressure on ourselves to pay extra on our mortgage when our rate is so competitive.

2. We are investors

My husband and I regularly invest money in the stock market. And the returns we could earn on our brokerage account could far exceed our interest savings by canceling our mortgage sooner.

If I were to pay off my current mortgage in 10 years instead of 15, I would save about $ 21,000 in interest. But that would force me to put an extra $ 750 per month on my loan balance. Now if I were to invest this $ 750 per month over a 10 year period, I would end up putting $ 90,000 in my brokerage account. If my investments generated an average annual return of 7% during that time, which is a little lower than the stock market average, I would end up with $ 124,000. This means that I would earn $ 34,000, which makes more sense than saving $ 21,000.

3. We have other goals that we want to achieve

My husband and I have a number of financial goals that we want to achieve over the next 15 years. We would like to be able to afford much, if not all, of our children’s college. We may also want to buy a motorhome to make our road trips, which we tend to take often, more comfortable. We will need the money to achieve these goals, and prepaying our mortgage may prevent us from doing so.

There’s definitely nothing wrong with prepaying a mortgage (although you should check to make sure your loan doesn’t come with a prepayment penalty). If you are able to do this, you could potentially save a lot of money on interest. But right now my family has other priorities so we plan to stick to our current repayment schedule, at least for now.