Hump Day Help – Round Up the Mortgage Check
Welcome to the Hump Day Help. Each Wednesday we take one of the weekly actions from Jonathan Clements‘ blog Humble Dollar and “militarize” it for you. Jonathan Clements was a longtime personal finance columnist for The Wall Street Journal, and he offers great advice at the best price you can get…free. Here is this week’s Hump Day Help:
ROUND UP THE MORTGAGE CHECK. If you’re paying $1,512 a month, send the mortgage company $1,600 instead. It’s a painless way to increase savings, the extra $88 a month could allow you to pay off your mortgage years earlier and you’ll earn a pretax return equal to your mortgage’s interest rate. That rate will likely be lower than the long-run return on stocks, but should be better than you can get with high-quality bonds.
Paying off your mortgage early is one of the major financial goals you want to achieve before retirement. There’s nothing more freeing than knowing your mortgage payment is a thing of the past.
The other concept that he mentions, that paying off your mortgage gives you a pretax return equal to your mortgage’s interest rate, is something to think about if you are investing in bonds and a topic we cover in our 4th Step to Financial Security. Why invest in bonds, which have a low yield nowadays, when you can lock in a potentially guaranteed higher return by paying off debt? Although interest rates and bond yields are slowly rising, it doesn’t make sense to me to invest in bonds when a guaranteed return is easily achievable by paying off your debt.
When faced with putting a six figure amount in bonds versus paying off my mortgage early, the choice was easy. I paid off the mortgage! And I haven’t regretted it a day since. No sure what you should do? Here’s a very detailed article that discusses paying of a mortgage early. In my opinion, you should make paying off your mortgage by retirement one of your major financial goals.