Pay off morgage or save (or both??)

**Cecilia** · 10-17-2006, 03:41 AM

We have no debt besides our house morgage. The interest rate on the morgage is 2,25% right now but with new gouvernment in this country I guess interest might become a bit higher, at least for a while. The total amount of our morgage is 130.000 US dollars.
I was now wondering: would you, if you had the choice pay more on the morgage or try to save some more money???
I can add that we have three kids (7 yo ds, 4 yo dd and 18 months old dd), we alreade save for vacations, emergency fund and a tiny bit for retirement.

All input welcome!!!

**movaly1** · 10-17-2006, 08:34 AM

I would say put in your retirement savings since your interest on your mortgage is so low. Or you could put some of the $ towards the mortgage if it will make you feel better to see the $ owed on the house get smaller.

**FrugalMomof3** · 10-17-2006, 09:12 AM

I agree, you mortgage interest in very low compared to others, I would put some money away EF, Retirement, etc... and pay extra each month or a big lump sum to see that balance go down even more. Good luck!

**banana** · 10-17-2006, 09:12 AM

I would also put most of the money towards your retirement.

**marei** · 10-17-2006, 09:41 AM

I am sure that we did it wrong financially speaking but we threw every cent we had towards our mortgage and it is such a great feeling to own our home free and clear. Have found that with no mortgage payment money accumulates so much faster and no worries at all about interest rates etc.

**FrugalWitch** · 10-17-2006, 10:51 AM

Well my Ninny (grandmother) always told me "Anything you payin on ain't yours. It's only yours free and clear when it's paid off" I'd pay off the house first, but that's just me.

**my4littlebuffaloes** · 10-17-2006, 01:32 PM

I would set a certain amount each month to go towards retirement and then if you have extra after that, put it towards the mortgage.

Jennifer

**ironmaiden** · 10-17-2006, 04:42 PM

I'd do 3 things. Doesn't have to be split evenly.

Doing it all gives you a warm and fuzzy in every direction. And you don't worry about doing the wrong thing. Decide which of the 3 is your biggest priority.

If the retirement plan is through work, max it out.
10% of salary is ideal. Some increase their percentage every time they get a raise. They'll either devote the whole raise to it or say with a 3% raise, retirement gets 1.5% and 1.5% goes to takehome pay. And they'll do this til they hit 10%

Evaluate that emergency fund in the light of:
- how old are your cars, your furnace, your roof, any remodeling ideas

And work off the house.
The arguments against paying off the house are:
- the money isn't readily available
- in an investment you'd earn more than you are currently paying in interest

The arguments for paying off the house are:
- it's a feeling of security that nothing else can compare to
- it's like having this massive insurance policy, you can tap the equity if you ever had to
- If the house is paid off in say 10 years less than originally planned. That's 10 years that the entire mortgage you get to SAVE instead of spend.
- You have many career options if you don't have to worry about paying a mortgage. Part-time, retire early, a dream that doesn't pay enough as the regular mortgage paying job
- The opportunity to take a couple months off to pursue a dream or travel as a couple months loss of pay would be easily managed
- Not having to fear layoffs as you know you'll be okay
- Paying for college should be easier as that monthly mortgage payment can help the kids instead

**FrugalMomof3** · 10-17-2006, 07:13 PM

I have been thinking long and hard about this question and it's a good one too, while I did reply before I kept thinking...

If you paid off the mortgage, the money you would have spent on the mortgage or even half of it could put put into retirement and EF, if I had to make a choice I would pay off the mortgage, one less monthly bill and extra money to put towards other important things now that its out of the way.

**rosebron** · 10-17-2006, 07:43 PM

I've thought about this as well.
Some days I want to stop any saving and pay all of it to the mortgage.
However, I still rely on the math to keep me from sane.

In my mind, building a solid retirement nest egg requires three things:
(1) consistent investing,
(2) proper allocation of the money and
(3) time.
Saving consistently over long periods of time allows small amounts of $ to build, for dividends to be reinvested and for the $ to fight inflation.
I've known people who retire well because of this.

So, if I stopped saving and paid off the mortgage with that money,
I would lose the time value of money.
As a result, I continue to do both.

**Cecilia** · 10-18-2006, 02:58 AM

Well, thank you all for your valuable input!!!! I didn't expect sooo many answers!
I don't think paying of the whole morgage is an option in my country, but maybe in the US. Here we have to pay taxes on the houses that amounts to 7% of your income

But if you have a morgage you can cut some of the taxes since the interest rate is removable in your income-declaration. (OK, I know it is an odd system seen from an american point of view...)
So if we pay all of our morgage the taxes would go sky high for the rest of the time we owned the house and we'd have to pay 45% taxes on the sales amount of the house if we sold it and we were not buying a new one. It's cruel

On the other hand retirements are OK here. You get about 60% of your pay in national retirement payed by the countrys social security. If you want more than that you have to save yourself. My parents are retired and living quite well with only national retirement. They were never nearly as frugal as DH and myself.

As for college for the kids: everyone who ever went to college in this country, myself included, has a national study loan. You pay 4% of your monthly income on that one. I pay about 100 Us dollars per month, not really much for a total of 16 years spent in all sorts of schools... Only very rich people here can afford to pay for their kids time in college, and that rich I don't think I'll ever get *lol*