The argument for paying your mortgage off early

I’ve had a number of people tell me I’m making a mistake paying my mortgage off early. If all goes well, my wife and I will be rid of that debt sometime this year.

I can understand the logic behind keeping that "good debt." But that’s idealistic. I have lots of reasons for getting rid of that as soon as possible.First, there’s my personal experience. Right out of college, I invested everything I could, and for a time I looked like a genius because the market was doing gangbusters in 1998 and 1999. Then the double whammy of the dotcom bust and 9/11 happened, and I literally lost half of it. Now that those investments have mostly recovered, the market is in the toilet again. How much will I lose this time?

Of course, when the losses are piling up it’s a great time to buy at low prices and hold. If that were the only factor, I might do it.

But in the meantime, I know exactly what the return will be if I pay off the mortgage early. And it doesn’t really matter what the rest of the economy does.

The second factor is job security. Let’s look at my recent history. In 2005 I lost my job. About six weeks later I found another one. It wasn’t ideal, because the company was having financial problems and I knew going in that it might not last. I took it because I was on the hook for pair of $400 car payments and an $1,100 mortgage. By my math, the money I had in the bank would last about four more months. I took the job because I didn’t like my odds of finding anything better.

The job lasted four months.

When that ended, I interviewed with another company for a temporary job. It was anything but ideal: About an hour away, and it was only for two months. But it was late October, not a good time for job-hunting, and this would get me through the holidays. The interview was a home run.

I didn’t get the job though. Later that very day, the company did a round of massive layoffs, and the job I interviewed for ceased to exist. I lost the job before I even had it.

For two months I looked and didn’t find anything. I couldn’t even find a desktop support job.

Finally at the end of December I got another job. It wasn’t ideal either. The biggest problem was that it was 45 minutes from home. For seven years I’d worked 10-20 minutes from home. Did I want the job? No. Did I have a choice? Given my recent history, not really. My car was paid off but my wife’s wasn’t yet, so we were still on the hook for $1,500 every month. This job was secure for at least a couple of years, which was a lot better than the last two opportunities. So I took it.

I’ve looked for something closer since then. The problem is that there are so many other people who want any job that comes up. I’ve had a few phone calls, but never an interview.

My job is reasonably secure until September or October. Beyond that, it’s anyone’s guess. If the house is paid off before then, it doesn’t matter nearly as much.

In decades past, if you got a job with a good company, there was a reasonable expectation on both sides that you would work for that company until you retired. That world doesn’t really exist anymore. A lot of companies want turnover, because it keeps wages down. It almost seems like some companies try to make sure you won’t be around more than five years so they don’t have to give you a third week of vacation.

Other companies run themselves into the ground before you can stick around five years.

In that kind of environment, being on the hook for $2,000 a month for 30 years just doesn’t look very appealing. There will be periods of time in your career that you won’t have that money coming in. The only question is when it will be, and for how long.

Changing careers becomes much easier without a mountain of debt. A lot of us end up in jobs that don’t really suit us, for whatever reason. We go to college and study four or five years, hoping to figure out what we want to do with our lives. It’s really not enough time, and most of us don’t actually find ourselves until we’re somewhere north of age 30. By then it may be too late. We’ve built up our debts and our lifestyles to the point that we can’t afford to change careers and start over at the bottom of the pay scale again. And if you have to go back to school on top of that? Ouch.

What if you want to chase the American Dream the classic way and go into business for yourself? The problem with that is that most businesses can’t make enough to support the owner until they’re two or three years old. This is why most businesses don’t survive more than 18-24 months.

If you’re not on the hook for $2,000 a month, you can much better afford to weather a few lean months or even a couple of years until you can either climb the pay scale in a new career, or your business matures to the point where it can support you. Getting rid of debt puts you back in control of your own destiny.

Finally, I’ve seen what it’s like to not have debt. Some friends of my mother in law and father in law convinced them that it would be a good idea to pay off all of their debt, and they gave them a plan to do it in seven years. They did it. And even though the two of them had modest salaries–she was a schoolteacher and he was a disabled veteran with no college education, which limited him to jobs that didn’t pay a lot–without that debt, they were able to live very comfortably and retire while they were in their 50s.

Imagine what it would be like to have the freedom to change to a career that suits you, reach the point where you’re able to retire in your 50s, but not really want to retire yet because you enjoy what you’re doing.

Not having an anchor of debt hanging around your neck opens a lot of possibilities, doesn’t it? I think it’s worth sacrificing a couple of years of investing to get to that point.