one of the central questions we’ve struggled with as we’ve been planning for our early retirement is where to allocate our money coming in: to investments or to paying off the mortgage early. but more than that, we often think about the question of whether the best decision on paper is also the best decision for our souls, or whether the two might be different.
an anecdote from someone we know, to illustrate the point:
years ago, this person talked to a financial adviser. at the time, said person had enough in savings to pay off the mortgage, and asked the adviser if it would make sense to do so. the adviser’s answer: the mortgage interest was providing a sufficiently large income tax write-off to make it disadvantageous to pay off the mortgage early. as a result, this person we know didn’t try to speed up paying off the mortgage, and a few years later, took out a HELOC, and eventually blew all of the home equity. when the person sold the house a few years later still, the outcome was to basically break even, and walk away with a few dollars, rather than pocketing the whole sale price, as would have been possible if person had disregarded the adviser’s advice and paid off the house years earlier.
obviously this example includes some suboptimal decision-making in later years (HELOC — bad! not saving — bad!), but it was all kicked off by making the decision that seemed best on paper. we think that if the person had paid off the mortgage, that would have instead felt deeply satisfying and ushered in a period of better financial decision-making.
we think about this same question — if we have X amount to allocate to investments and mortgage payoff each month, how should we divide it up? we know that paying off the house will be a huge psychic victory for us, and will make it easier to push through work when things are stressful, because we’ll know we could walk away any time. paying off the house would also then give us more money each month to invest, because we won’t have a mortgage payment. BUT, our interest rate is barely 3 percent on a 15-year mortgage, and our vanguard investments are doing better than that. we also do get the tax write-off on the interest, albeit a small write-off. so on paper, the right thing to do is make the minimum mortgage payments and allocate as much as we can to investments.
we know that owning our house free and clear will be such a huge victory for us and will nourish our souls in ways that you can’t put a price tag on. the sense of freedom we’ll feel, even if we don’t yet have enough money to retire early, in knowing that we can walk away from our jobs and find other jobs will be enormous. so we’re going against the best-on-paper decision in this case, and continuing to pay off the house ahead of schedule.
do you ever think about what’s best for your soul? what are some decisions you’ve considered in this light? are we the only oddballs who think this way? ;-)
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