Pay off mortgage or not?
I know all the arguments about why you should or shouldn't, but am trying to decide based on personal circumstances as to whether it's in my best interest to pay off the mortgage as soon as possible.
First off, I am fear driven. Been homeless twice due to tight housing/rental markets. Always paid rent and other bills on time, it was a matter of availability. We've been through routine lay offs every year or two, sometimes missing the cut, other times not. We've been through a seriously long extended layoff which left us financially drained. I never want to be in either of these situations again.
We are also in a high cost area, but bought the house before the last boom when things were still dirt cheap here. Even if we sold this house out of necessity, we could not afford to buy back into the market as our property tax controls keep our property taxes to 1/3 of what it would cost today to buy an identical house. Our house is very modest in size and is in a great location, there isn't anything cheaper in the area and what would be is unsafe. We have no intentions of selling this house at any point in the foreseeable future.
We currently have about 1 year's worth of living expenses put away in an easy to access account, perhaps a little bit more. DH has a 401k, but I don't see that as accessible even in a pinch as so much would be lost to penalties. As far as I'm concerned that money may as well not exist.
We have no CC debt. We have no car payments.
We are almost to a point with our mortgage that our itemized deductions (from all sources) will be less than the standard deduction. We are not getting a substancial tax break at all.
So after all that, here are the scenerios I've come up with- please share your thoughts:
1) Pay off the house ASAP. We're 4 years into a 30 year FRM and at our current rate would probably see payoff in about 6 years. This barring an extended unemployment or other financial disaster. However, in that case we can cut back to bare bones and live off savings for up to 1 year or so- assuming neither of us is working any at all. After a worst case scenerio, our focus would then be on building up that savings account again. Payoff is very appealling as it would remove the worries of job insecurities completely and our "1 year" emergency savings would become more like a "3 year" emergency savings without a house payment to consider.
2) Don't prepay the mortgage at all and instead invest what would have been the extra principal payment. The upside here is more accessible cash in case of an emergency. The downside is that being fear driven I would make very conservative investments until the house is paid off and those investments would be very unlikely to make more percentage-wise than we are paying on the mortgage.
3) Continuing prepaying the mortgage down to a certain dollar amount, and then go back to paying just the minimum and investing the difference (not as conservatively as with option 2, so could possibly make a higher % than the FRM). I haven't determine where this line would be, but a relatively low balance that we could generate cash and/or small loans to cover.
As things stand right now any future raises are to go directly into savings or investments of some kind, so even while prepaying the mortgage we should be able to save a bit more on the side.
Please give me your feedback and any ideas or thoughts you might have about this. I'm feeling very confused about which path to take- stay on the prepayment or do something different.
Thanks, I appreciate any input.