Joshua Wood Web Developer

Money and Investing

This is a general page with some thoughts on personal finances.

Prepaying your mortgage

This thought process assumes that:

  • You have saved the money to pay off your mortgage, or at least have the surplus income to pay off your house in the next 10 years.

  • You have good financial habits.

If either of those are not true, I recommend reading I Will Teach You to Be Rich by Ramit Sethi first (see Book Recommendations*).

Considerations

Will it save money?

$100K @ 4.25% APR, 10 years, vs: past market performance—8-10% annually?

Before he died, John C. Bogle’s reasonable expectations for annual market returns this decade were well under 4%.

Even with lower market returns, it’s usually cheaper to invest the money—but there’s always a chance that it’s a wash.

Do the math yourself and see what you’re comfortable with.

Is there an opportunity cost?

Is there a better use for the money?

  • You could self-fund a business instead, which would be like taking out a low-interest small business loan.

How long would it take you to replenish your savings with no mortgage?

How will it make you feel?

Is it a goal you want to achieve?

Will it change your mindset to be debt free?

In the end, it probably doesn’t matter too much. Do what will make you happiest. You could also try a regret minimization framework.

The hybrid approach

Save in a 10-year target-date growth account instead, i.e. through Vanguard or Betterment.

Once you have the money to pay off your mortgage in one lump sum, reevaluate (see Considerations).

You’ll have a better idea of what it takes to save that amount of money, and you may capture a higher return in the meantime (if nothing else, you’ll be a more experienced investor).

This is what I did. I have no regrets having paid off my mortgage early. Now that it’s done, I do feel a shift in mindset. In the past I have toyed with the idea of trading up to a larger mortgage (i.e., shopping on Zillow). Now that I’m debt free, I feel less inclined to have a mortgage again.

  • For me, this is also part of Taking money off the table in a self-funded business; investing profits into a financial independence strategy helps manage risk when you’re building a slow company.

Book Recommendations

These are books which have made an outsized impact on my financial thinking. If you can’t afford one, email me and I’ll gift you a copy (seriously).

I Will Teach You to Be Rich by Ramit Sethi

  • To be honest, Ramit isn’t my favorite author; I find his tone to be off-putting. That said, he has the best system for automating your budget that I’ve come across in personal finance books, which is super important.

The Total Money Makeover by Dave Ramsey

  • The nuclear option—if you need it.