Anonymous left a comment yesterday and asked some questions about why I prepay my mortgage. I was going to reply but then I thought I would just make a post out of it because I am feeling lazy and I don't want to spend my entire Friday night sitting in front of my computer. I am guessing that this commenter hasn't read my blog for long otherwise they would know my reasons already.
So, Anonymous said:
-Do you know that "a big mean bank" would still take your house away if you stop paying monthly. Of course. This is part of the motivation to pay it off as quickly as possible. I want the mortgage to be gone before I lose my job or something happens which affects my ability to pay. I don't like the power the bank has over me.
-Paying ahead to increase equity does not count as regular monthly payment for interest/principal. That is the idea. I don't want to pay extra payments. I want to shorten and eventually end the loan early.
-In the mean time, you have to suffer with minimum living. True, my standard of living is considered 'minimum' by some. I happen to think it is creative, challenging and will help me reach my goals faster than anything else I can think of except winning the lottery or marrying a rich fellow. ;)
-Putting your extra payment into a mutual fund is more beneficial in a long run. When I first started my mortgage payoff plan I had $25k in the bank. I read everything I could find on the subject of investing verses pre-payment. True, investing will potentially yield more money at the end of 20-30 years if the stock market cooperates but paying off the mortgage will be a fabulous feeling! Plus I find watching the mortgage go down a lot more motivating than stressing out over a mutual fund's performance.
-Because it is more liquid and it earn more interest than you pay toward the house. With potentially only 1 1/2 years to go before my mortgage is gone and the way the stock market is riding the waves, I like the security of paying off the mortgage. It really comes down to risk tolerance and I'm not willing to risk my house money. My 401k has lost 40% but I am ok with that. I have time to wait it out. This is all part of my diversified retirement plan. The house is my safe investment, my property is my back-up plan, my 401k is mostly in stocks, the money that I save after the house is paid off will be money to play with and social security, well, I'm not counting on that.
Here is some of the information that I read before making my decision back in December of 2007:
From Get Rich Slowly's blog:
Is It Better to Invest or Prepay Mortgage?
And from Bankrate.com:
Prepay Mortgage or Invest?
It's not the choice everyone would make but it is the choice that let's me sleep at night...and dream about what financial freedom I will have in 1 1/2 years!