Mortgage Payoff Question In light of such an uncertain financial future in this country over the…
Mortgage Payoff Question
In light of such an uncertain financial future in this country over the life of a 30-year mortgage, how wise is it to try to pay it off early by making extra payments each month? Please keep reading before you reply so you understand the variables.
First, I'm a math and Excel whiz so don't need any help understanding mortgages, spreadsheets, math, or which variables to plug in. I understand all that. My more precise question is,
Is it better to:
A.) make extra monthly payments like our parents and grandparents did, or B.) bank the cash instead (or buy gold) and only pay the mortgage off when you can write them one large check.
My thinking is prejudiced by four big factors: 1.) you can never get "ahead" on a mortgage. No matter how many extra payments you've made, if you miss three in a row, the sheriff still shows up at your front door with eviction papers. 2.) I lived in Argentina in the late 70's at the tail end of one of their hyperinflation cycles. 3.) After buying my first house, the corporation which owned the business was caught up in a mini AIG-type scandal and we all lost our jobs. Even with a severance package, I know what it is like to shit bricks wondering how you are going to make a mortgage payment and feed the kids. 4.) When I read CRFB.org and Congressional Budget Office (CBO) 10-year forecasts, I can only think we're headed over the edge of a very high cliff. Congress's record only strengthens my belief.
When I think of a 30-year mortgage, I'm pretty sure life as we know it will be quite different 30 years from now. This summary (http://www.crfb.org/sites/default/files/2018_Long_Term_Budget_Outlook.pdf) by the CRFB of the CBO's 2018 Long-Term Budget Outlook is a real eye opener, especially when you consider that the CBO has a record of being too conservative. When I looked back at their 2008 report (https://www.cbo.gov/about/products/budget-economic-data#4), to see what they were saying 2018 would look like, they were way off on their guess about the national debt. They were projecting $12.7 trillion, we ended 2018 just a few pesos under $20 trillion.
Budget and Economic Data | Congressional Budget Office
CBO regularly publishes data to accompany some of its key reports. These data have been published in the Budget and Economic Outlook and Updates and in their associated supplemental material, except for that from the Long-Term Budget Outlook.
So, I'm wondering what Mish readers would opine.
Option 1: Make extra payments to your bank account and only pay the mortgage off when you can do so in full. Option 2: Take the extra payment money each month and buy gold. Option 3: Do like grandma and grandpa did and pay some extra each month to the mortgage company. Option 4: ?
With option 1, inflation is irrelevant. Since inflation rewards debtors and punishes savers, and you are using the savings to pay down your mortgage, you break even. With option 2, if the feces hit the fan you should come out way ahead as inflation ups the price of your gold but your mortgage payment remains the same. On the downside, the price of gold could also drop. With option 3, you risk losing your house if the Greater Depression hits and you lose your job sometime before you get the mortgage paid off.
With options 1 and 2, of course, you end up paying more in interest. But it also guarantees you that you can make the monthly minimum and keep the sheriff off your doorstep in the event of a Greater Depression. With option 3, which has worked successfully for the past 200 years, you pay less in overall interest. But at what risk?
Thoughts on how to advise my kids??