Paying down the mortgage — good idea?

I posted a comment recently on Remodeling This Life and want to discuss it further here.

A guest poster suggested one should pay down their mortgage early. Actually (at least for our situation,) I disagree. Consider hearing me out…

We have been following Dave Ramsey’s plan as outlined in his book “Total Money Make-over.” We attended Financial Peace University and have made more progress in the last two years than in the previous twenty years of marriage. Thanks to Dave, we are debt-free except for the mortgage and I wrote CheckMATE so that I could manage our spending as he teaches. I owe Dave a tremendous “thank you” and recommend him to anyone who asks about money.

Dave takes you through seven baby steps and we are getting close to baby step 6 where we should pay off our house. Thankfully Dave also encourages people to think for themselves so we’ve been doing some analysis on our own.

We both work for the same company and our jobs are tied to the housing market. Thankfully business is okay right now - down but okay. Our jobs seem secure. We are also a little older and are starting to get more conservative with money. Keeping that in mind, consider these three outcomes and see if any apply to you.

1. Let’s say we have six months worth of expenses saved in case we lose our jobs. Then we start paying down our mortgage. We owe approximately $100,000 and we throw everything we can at our mortgage. Let’s say some time goes by and we get the balance of our mortgage down to $50,000. Then, the worst happens and we lose our jobs. We don’t find other jobs and six months later, our savings are exhausted. Three months later, the bank forecloses and we lose our home. We are back at square one but hopefully still debt-free.
2. Now let’s say we saved a year’s worth of living expenses before we lost our jobs (instead of paying extra on our mortgages.) Now we have a full year to try to find a new job. But let’s say we don’t and 15 months later, the bank forecloses. We are back at square one, hopefully debt-free and we didn’t have as much money tied up in our home.
3. Finally, let’s say we keep throwing money at our savings and in the meantime, the economy comes back. We don’t pay down our mortgage but we do keep throwing everything we can at our savings. Our savings keeps going up and our mortgage keeps coming down. At some point, we are going to have more in savings than we owe on our mortgage. We keep saving a bit more (because we do want that emergency fund) and then we pay off our house all at once.

I think these are tough times and that every family should think their decisions through. Think about your own unique circumstances and your own tolerance for risk. In the end, you’ll make a better decision that will serve you well!