Pay Off The House In Five Years?

I was talking to a friend of mine and she was saying that she and her husband were trying to decide whether they should try to pay off their house in five years or not.  They currently have a 15 year loan and have an excess $3K plus per month that could be used to pay down their mortgage.  They also have a couple of kids that are about 6-8 years away from college.  For them, the thought of having no morgtage payment is huge.  Their goal is to be absolutely debt free.

What’s most interesting about this story is that these same people used to struggle to make ends meet on a salary similiar to what they make today.  It was only after they lost one of their incomes for a couple years that they realized they had been letting their money own them, as opposed to how they are today where they own their money.

We talked about the standard items you’d bring up when trying to decide whether to pay off a mortgage or not.  Could they make more money by investing the additional money instead of paying off the house?  If they invested the money and received a 10% return, maybe they could cash out that investment in five years, pay off the house, and then have additional funds left over.  We also talked a bit about the tax benefits of a mortgage.  On paper, it probably makes the most sense to invest the money, take the tax benefit from writing off their mortgage interest and then pay the house off with proceeds of their investments in five years.  The reality is that, after more discussion, they are probably going to stretch out the goal a bit and shoot to have their mortgage paid off in 6 years so that they can use that additional money to pay for college for their kids.

One thing that struck me was that it really didn’t matter which decision they made.  They had already made the life altering decision to spend less than they earn and pursue investing for their future.  That was truly the main factor in their finances.  They are smart people so regardless of whether they decide to invest their money, or pay off their mortgage, they have already succeeded, simply by having changed their financial strategy