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Why I’m paying my mortgage early (but not my student loan)

November 18, 2014

I made a goal to put $25k extra towards our mortgage in 2015

The first reason is because I can do this while still meeting my higher priority financial goals.  This goal isn’t a “must” in my life, but it is an option that we choose to take.

The second reason is because we prioritized retirement savings prior to this year.  While (some of) my friends were investing in their first homes, I was investing only in retirement.  I started out saving 8% (balancing paying off higher interest student loans).  I gradually increased my savings until we moved in together and I was able to save the maximum in both a 401k and a Roth.  I did that for several years.  This is the first year we’ve dropped the Roth’s (not eligible, not interested in “back-door” for now), but we will have added ~$50k this year between us to our retirement accounts.

The third reason is because I’d like to reduce risks.  Despite the fact that we have equity in our home (from down payment) and can afford our mortgage on one salary, I’d like to make more strides to keep our options open.  I’m risk adverse when it comes to finances.  Choosing to settle in an expensive area left me with choosing between competing risks… and I’d like to reduce the one that I chose.

The fourth reason is emotion.  I don’t want to have a mortgage when I’m 60.  I would love to get rid of my biggest bill.  Despite the fact that you can show me the math and the spreadsheets the “prove” I’d be better off investing rather than paying down the mortgage, I would prefer to pay down the mortgage.  It would make my life simpler.

But I’m in no rush to pay off my student loan (approx. $12k)

My student loan, on the other hand, has never bothered me.  The interest rate is higher than my mortgage (still low), but I’m not planning on paying it off quickly.  The difference is that my student loan is low risk to keep on the books.  The monthly payment is low, the balance is low, the interest cost are low, and I could probably put it into deferment for almost no penalty (aside from interest).  It is also an unsecured asset.  If I pay it off, I can’t ever recover the cash I paid.  In contrast, we could sell our home and recover the money we put into it (at least in theory).  For now, I’d rather keep my cash in the bank.

I’ll probably pay it off a little early, but it is just not a priority.  I recently (half-heartedly) increased my auto-payments by about $100 month to accelerate it, but given our cash flow, it is a pretty insignificant amount.

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9 Comments leave one →
  1. November 18, 2014 9:37 am

    I’ve been kind of lurking lately because I am out of my blogging-and-reading rhythm, but I wanted to tell you that I’ve really been enjoying your posts lately. I am starting to move into a higher-income part of my career, and I’m 1 month into my marriage, so it’s really helpful to read about how you and T are managing things with your new jobs, new house, etc. I’m very inspired to level up, and I wanted to tell you thank you!

    • November 19, 2014 2:55 pm

      Congratulations on the marriage – and thank you not only for reading, but of taking the time to share this with me. Sometimes I feel like this blog is silly since I have a handful of readers. But i enjoy it, and i have GREAT readers, so while it may be silly.. I think it is worth keeping around. 🙂

      • November 21, 2014 6:03 pm

        I have read your blog for probably three years (ish). I also appreciate your writing, as my husband and I are in very similar life stages and income brackets as you.

  2. November 18, 2014 1:06 pm

    This is part of why some of our friends in the bay area chose to put 40% down instead of 20%– to minimize the monthly required payment risk. It is really daunting looking at required housing costs including escrow in the SF bay area.

    • November 19, 2014 2:50 pm

      Totally. Although in theory one could have a pile of cash/investments to offset the risk (instead of dumping to the mortgage), it just seems simpler to put it directly to the mortgage.

      • November 19, 2014 5:22 pm

        Especially given that the jumbo mortgage rate is way higher than savings or cds, and they’re assuming they won’t be laid off any time soon so they can rebuild that cash buffer now that they’re no longer saving for a down-payment. (Obviously the stock market is more, but when silicon valley is tanking, so are tech stocks, usually.)

        • November 21, 2014 9:36 am

          Yeah, makes a lot of sense, esp. if you aren’t willing to invest in stocks. Which I wouldn’t be either.

Trackbacks

  1. Mortgage Pre-payment | Stacking Pennies
  2. Earnest Student Loan Refinance | Stacking Pennies

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