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Coach
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The rough math works out in favor of investing your money in a good index fund vs making extra payment towards your home. Today’s rates are so low, the amount you generally return from an index is more than the amount you’d save from paying extra. Of course you’d need to consider risk in stocks vs guaranteed savings, tax advantages, personal preferences etc.
In any case, congrats on the new home!
Unless we’re talking about thousands and thousands in extra payments at once and you shave off years and years (let’s say you pay off the 30 year mortgage within 13 years), there’s no reason to do this (going down from 30 to 27 makes no sense), better to save and invest it. And huge congratulations, this is great and you can be very proud of it! I think many people feel this way, but you’ll adjust to it, and all will be fine. Enjoy your new home!
Yes I very much agree with you on this, though my family is on the side of paying off debt early. Thank you for the kind words!
I am in the boat of paying minimums on my mortgage and saving/investing the rest. As others have said, the interest rates on mortgages are so low. there is no reason to try accelerating the payoff. You can easily exceed 2.5%-3% in the markets, and that amount compounded over the life of the mortgage is significant.
Coach
I’m a big believer in keeping low interest rate debt and only paying the minimum. You’re unlikely to ever see rates this low the next time you buy a house. You’ll also find that as the value increases and you gain equity in your home, that debt looks a lot less daunting.
That said, if it is something that becomes a mental block for you, I wouldn’t underestimate the ability to sleep at night.
When my parents bought their first house in the early 80’s, they had a more than 10% interest rate. But I think they also said they got something like 8% interest on their checking account. I think in our low interest rate environment, the advice is different. Perhaps your parents learned their advice in different times. I know it can be hard to readjust your mindset from the “life lessons” you learned in your 20s.
When I first became a homeowner, I had a lot of fear of carrying that debt and thought the same as you. However, the tax benefits are nice. So I’ll pay it off early if I have oodles of cash or want to buy other investment properties. It got easier to get to that mindset over time though.
How does the math work when comparing renting to buying? I’m looking at NYC apts right now as well but the property taxes and maintenance charges on top of the mortgage seem a bit hard to stomach
I’m sure you’ll get lots of recommendations. But practically it seems to boil down to, a) will you stay for many years, like 5+ in that one place, and b) does rent payment cost more than total cost to own monthly payment (including everything - mortgage, hoa, taxes, maintenance, etc). If both are true, than it starts to make sense to buy.
The mortgage balance is large, and generally that’s fine as long as you didn’t buy more house than you can really afford. Paying it off faster is generally a worse deal than investing in the market.
That said, if the monthly payment feels high, what kind of mortgage do you have? Eg with a 15y mortgage you might get a lower rate but you do force yourself to make higher payments every month. Opposite end of the spectrum would be an interest-only ARM, making no principal payments at all for some time.
Sounds like maybe you did buy more house than you can afford then. That said, it’s not necessarily a reason to pay it off faster. You just need to watch your other expenses so that you don’t have cash flow issues. And build / keep a savings buffer in case of emergencies