Back In Debt

The last 3 months have been a whirlwind of new.

New House. New Job (woot! New job!)

While all of that is super excellent, that first one came with a big piece I wasn’t so excited about.

New Debt.

It has been nearly 2 years since I paid off my student loans. That’s a feat I still can’t fully wrap my head around. I still have my car loan but it’s chugging away at 1% and the balance is under $4000!

Now I have an additional $172,000 worth of debt.

*shudders*

I knew we were going to have a mortgage on our house. That was inevitable. I certainly wasn’t going to save forever to buy a house in cash. Who has time for that?

I thought I was okay with the mortgage. For 90% of me, I am. I’m cool. The mortgage is reasonable. Our payment is less than we pay in rent. We put 20% down. The interest rate is awesome (3.375%!) All of that screams “Let it ride!”

The payment is great. Adjusting for inflation, it will look even better as the years pass. It’s also pretty cool that it’ll be paid off before I’m traditional retirement age. That’s the goal right?

For the past few years when I read about people paying off their mortgage aggressively, I didn’t get it. If I can get better returns in the stock market, and I’m sure I can beat 3.375%, shouldn’t I be investing? That’s what my brain says.

But my heart is starting to disagree.

Having a mortgage until 2047 is kind of ugly. I’ll be 60. That’s twice my age from now. I have been on the planet only 3 months longer than the amortization schedule of my mortgage! My mom had a 3 month old me 30 years ago and I just signed up for debt that long.

I’m going to say No to that option.

I’m not jumping on the KILL IT IMMEDIATELY train. I have investing to do.

I’m sure I’ll come up with some crazy game to play to pay it off early.

For now I say…

SUB-2047 OR BUST

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17 comments

  1. The psychology of debt is very strange. Even though it may make more sense from an earnings perspective to invest money, it somehow feels better to pay off debt. I have about $140,000 of student loans that I’m paying 2.8% on over the next 10 years. Even though it makes way more sense to invest any surplus (especially because I get huge tax savings from investing), there is a huge part of me that just wants the debt gone.

    1. So strange! I think you’re doing to right thing by going after the 140k. 2.8% is a sweet interest rate but 140k is giving that small rate too much power. I doubt you’ll regret it! 😊

  2. It sounds like you did very well with your home loan. I’m sure you’ll feel a little better about it all once you’ve had some time to settle in and enjoy your house. Congrats on the new job!

  3. We think alike. I’d like to think if I got a 30 year mortgage I’d pay it off in 360 payments. But even though the math says that is the right thing to do, I know personally I wouldn’t be able to follow through with that goal. I think finding a happy medium of investing and paying down the mortgage early is the sweet spot!

    Congrats on the house and job!

    1. Thanks FF! So much new at once!

      It will be interesting trying to find the balancing point. Right now I’m leaning toward a percentage approach. 75% invest, 25% mortgage? I’ll figure something out!

  4. Eeek. I know how you feel. When my wife and I bought our first home my stomach hurt thinking about the new debt we were taking on. The good news is the payment is less than your old rent payment. If you continue to pay what your old rent was you’ll have it paid off sooner than your 60th birthday!

    1. It is a lot of debt. But like you said, it fits into my life as it is. I’m not suddenly facing an extra large payment every month. I’ll have to remind myself on my 60th birthday to remember that I should still have a mortgage. That puppy better be long gone by then 🙂

  5. I am totally with you. I *know* that my mortgage rate is low enough to leave it alone… I *know* that it would be wiser to invest more money… but the idea of being mortgage free earlier than the 25 years away that it is currently is really, really tempting!

  6. Here’s a potential suggestion. What if you put all the surplus payments you would make into a separate investment account? Let that ride until there’s enough in that account that you could liquidate it all and pay off your entire mortgage at once. That way, when you get to that point, you can let your heart decide again if you feel like paying off all the debt or letting it ride some more.

  7. Ba ha ha ha. I love you! This is so great. And hilarious. Finding a balance is tricky… trust me. I’m trying to find it… and it’s killing me softly (sing along now…). Just figure out a good “Extra” you feel comfortable with for now and just add that much to each payment. “I’ll always pay $300 extra/month or whatever” Don’t be too aggressive just yet. 🙂

    1. Now I have that song stuck in my head. How dare you!

      I’m planning to go easy peasy on the mortgage in year 1. Let it settle in what we are dealing with. Year 2.. who knows. At least I’ve got a year to think about what Extra feels right.

  8. It’s not quite as simple as comparing the interest rate in the market to the interest rate on a house. First the amortization is different than with most other kinds of debt, so the effect of prepayments is much larger at the beginning of a mortgage loan when your regular payments are mostly paying interest. Second unless you are planning to default, paying down your mortgage is a risk-free investment with a fixed interest rate, whereas putting money in the market is risky. Risk free investing is more valuable than risky investing at the same expected interest rate.

    1. Fair points! Don’t we all wish it was that simple? No plans to default here, so risk is a factor. So much to think about as I tackle all of the house questions. It’s all been theoretical until now!

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