A Change in Plans
Covid-19 has brought a lot of changes a lot of financial changes to our household. This is both in the mindset of how our finances are handled and our overall goals. The biggest one has been in regards to the payoff of the mortgage vs investing question.
There are a lot of arguments for investing over paying off your mortgage. The math says that if you have an interest rate of 3% and the market is making 7%, then it makes more sense to invest the money since your money would grow more than you would save paying off your mortgage. The math is sound. But the math wasn’t really anywhere to be found when Covid-19 hit back in March, and we were worried about me losing my job.
At that point, what mattered was making sure we had somewhere to live without issue. So, when I got the biggest paycheck of my career (12 homes closed in the same month), we did not stick to the plan of maxing out our IRAs, putting money towards Mr. FOGA’s new car, and investing the rest. We prepaid the mortgage for six months. Yep. For SIX months. We also prepaid internet, water, power, and trash. Why? Cause we knew that it was paid off to that point, we had some time to save up more funds just in case. Plus, if I did get laid off, we had some time without too much stress about my loss of income.
Then the real estate market went insane and we have sold more houses than ever before in this area. My job was and is safe (knock on wood). And during that time, we had very little bills. We were able to adjust our plan for the year and buy and pay off Mr. FOGA’s new car (if I lost my job, getting the car would have been MUCH harder). We also got to experience a little of what life without a mortgage is like. Simply put, the math can kiss my ass.
This was somehow the craziest and ridiculous part of my life for all the obvious reasons and yet somehow calm cause a HUGE weight was lifted. At least temporarily. This led to a big change in how we are managing our money. Paying off the house now takes precedence. At that point, we lived in the house for 3.5 years and had 24 years left on a 25-year mortgage at a 4.5% interest rate. Now, with the rates being so low, we decided to refinance again and just closed at the end of September.
We are the proud new owners of a 15-year mortgage with a 2.875% interest rate. Our mortgage is lower in number, but not in what we are paying. We are continuing to pay the same amount we were paying previously, which brings us down to 9.75 years left on the mortgage. If you need a cool, free mortgage payoff calculator, check out this one.
But that’s not all. Since my income is variable since I am commission, there’s no real way to plan what my future paychecks look like. So, we had to come up with a rule of some sort. Anytime there are extra funds, they go 50% to paying off the house, 25% to other investments, other 25% for other stuff. The goal is to get rid of this mortgage in under nine years, but, hopefully, sooner than that.
Our first payment with the new, refinanced loan is in November and then the fun begins. Looking forward to getting rid of this thing once and for all. 😊
So what do you guys think? Do you prefer investing over paying off the mortgage? Let me know in the comments.
And before I forget, let me take a second to congratulate A Purple Life on her retirement. FIRE at 30!!! 🎉🎉🎉
Also, to congratulate Zero (Walking to FIRE) on both buying her house in July and her awesome progress on paying it off. Seriously, check this out:
These ladies are my heroes and you should check them out.
Until next time.
Ms. FOGA, love your blog! I’m a proponent of money going towards investment first and then mortgage, but you made an excellent point. Even though the math checks out, the uncertainty of COVID certainly makes me question this. Congrats to A Purple Life and Zero for their achievements. Keep up the great work!
Hi. This is a very late reply, but thank you. 🙂 I definitely lean towards paying off my mortgage more and more every day.