Mortgage Payoff Analysis _ financialindependence stop claiming housing benefit

I have been doing some back of the napkin calculations around the best time to pay off my mortgage. The way I see it there are many options, but I want to discuss the three most relevant to me: 1) pay it off ASAP 2) hold low interest rate loan for entirety of loan 3) pay it off at retirement.

Pay off all debt as quickly as possible to eliminate monthly expenses and unnecessary costs. There are many methods one can implement to accomplish this (snowball, highest rate) and those have been analyzed many times on reddit. This option benefits many in that it provides a goal, becoming debt free must feel liberating. It also will reduce the monthly expenses of the individual thus increasing savings rate or allow for lifestyle creep.

This option has a more long term benefit, but can have more pitfalls along the way.

Assuming the interest rate on the mortgage is lower than the average rate of return on your invested assets, an individual could be wise to pay the minimum on their debt and increase their savings rate.How to stop claiming housing benefit mortgage rates over the last few years have averaged around 3.5% and the long-term average on the SAP is around 7%. If an individual could pay an additional $500 a month either to debt or savings, that 3.5% a year over ten years equates to an increased net worth of approximately $15,000. That is ignoring the utilization of tax benefits both on the savings side(401ks, iras etc.) or for itemized deductions on the interest expense side. This is over a short time horizon, given a longer one, the effects compound and are even more favorable.

Based on the brief analysis above, if you can stay disciplined and you have a lower rate interest rate on your debt than the average return in the markets, you should invest over pay down debt. That is mathematics, but each person has their own preference for different reasons.How to stop claiming housing benefit where the math gets interesting is at retirement. Assume you took the long-term approach and at retirement still have outstanding debt. For this example, there is $50,000 left to pay off of a $100,000 30 year loan, where monthly payments equal $449 a month, your SWR is 4% and monthly expenses are $5,000(including mortgage). If you keep the mortgage you will need a nest egg of $1,500,000, whereas if you pay off the mortgage you will need a nest egg of $1,415,300(1,365,300 for withdraws and $50,000 for payoff).

Just what feels right to me but I would not want the mortgage payoff to wipe out all of my liquid savings. That seems like a good balance between staying invested for a long period but getting rid of debt when the time is right. I know for ER it is not absolutely necessary to start with liquid savings, but I still like the cushion of a brokerage account behind my emergency fund as well as to have liquid funds available for the beginning of ER without having to worry about SEPP plans and such.How to stop claiming housing benefit but you don’t want to be overly aggressive on the mortgage and keep yourself out of the market by paying off too quickly.

The math is all about the known rates vs the unknown return. If your rate is anything over 4-5%, then paying down debt may be an easy choice. If your rate is under 4%, then it’s much more of a judgement call. Think of paying down debt like owning bonds. You do it for the safety margin and piece of mind, not for the immediate return. Mostly I agree with u/aristotelian74…Maximize tax advantaged savings vehicles, then apply a portion of remaining free cash to debt, investing, charity, or whatever your heart desires. If you do the math, you’ll see that it doesn’t make nearly so big a difference in achieving your FI goal as you think.

I get to heal sick people every day, I’m well paid, I own my practice, and honestly enjoy most of what I do.How to stop claiming housing benefit I do like the idea of slowing down and having more free time. In 10 years I’ll be debt free and have enough money to live nearly any lifestyle I want, but my kids will be 20 and 23, which to me means they could go to grad school, be screwups that I have to support, or something in the middle. If I totally quit and sell my practice, it’s much harder for me to go back to work. If I cut back to 10-12 days per month, then I’ll have more free time than I’ve ever had, I’ll be able to travel, I can watch my nest egg grow without pressure to add to it, and why wouldn’t I keep going at a relaxed pace.

Life is a journey. Don’t forget to enjoy the path focusing only on the goal. I used to take road trips as fast as I could and would pressure my companions to minimize stops as much as possible. It was a stressful way to go.How to stop claiming housing benefit now I have no problem stopping to piss, can sit down to a meal if were hungry, will stop at an overlook and enjoy a beautiful spot. It makes travel much more fun. I want life to be like that as well.