Friday, 4 July 2008

Why I keep a mortgage...

I have enough cash savings to pay off my mortgage and still have a bit left over.
But I wont.
Personal circumstances and lifestyle practicalities dictate that DH and I should not pay off the mortgage. Having the savings liquid (or semi liquid) fits in with our requirements.
Firstly I am a contractor, so I have zero job security. DH has a permanent job but it will never be the type of role that is a "job for life". If his employers want him out he is on one months notice. Yes, if he was dismissed unfairly he could file a claim for remedy in the court system but lets be realistic, owing to the principle of mitigation of loss he would not achieve that much more if his claim were successful.
There are so many uncertainties in life today. What if one of us is ill/cannot work/cannot find work etc, we need a financial cushion. We also like freedom to travel. Liquidity gives us freedom and more choices.
I think sometimes that the idea of paying off one's mortgage is overrated. Even if the mortgage is paid off, one still needs an income to pay bills/buy food etc.
I think it really does depend upon personal circumstances. We do not want our present home to be a permanent primary residence, therefore to throw all our cash savings at it now would be too restrictive. Yes the mortgage would be paid off, but in today's economic climate we may not be able to sell it at a time when we need to release the equity.
We plan to lead a semi nomadic lifestyle for the next several years so for us it suits us to keep the mortgage, at least until we sell, but that's another story....


The Executioner said...

Interesting position on the mortgage debate. I realize everyone has a different financial situation, so what makes sense for one household might not for another. If you are truly nomadic, have you considered renting instead of owning? And if you end up staying longer than you intend in your current home, I assume you are OK with paying for your residence several times over (due to interest costs) in exchange for the flexibility that comes from a large amount of liquid savings?

Personally I can't stand the idea of having debt to my name, and can't wait to cross off the mortgage from atop the list of monthly expenses. Yes, you still have to pay for food and such once your debt is gone, but you have to pay for them whether you have a mortgage or not. And the absence of the mortgage payments would mean that you could possibly cut back from two incomes to one, or from a full time job to a part time one. My priority is not maximizing my income, but rather reducing my expenses, so eliminating the mortgage makes sense for me. And for someone who wants to "Escape the 9 to 5" (as I do), I'm a bit surprised by your position here.

Claire said...

Hi Executioner

THanks for posting!

I suppose the situation suits us. Also the mortgage rate at the moment is fairly low and we are getting a higher rate on the investments than we are paying on the mortgage, so it makes sense at the moment to continue with the mortgage.

As to renting - yes it would make much more sense, we are hoping to put home on the market in the very near future and sell - finanically at the moment it makes a lot more sense to rent.

For us at the moment the priority is to accmalate as much cash as we can - we plan on taking a sabatical over the next year or so - we will take a mortgage break then (up to 6 months) yes there will be a charge for that.

The comment about working less or not at all without a mortgage is not attractive to us at the moment. I live in the city, there is nothing to do if one doesnt work - so for as long as we have to live in the city I would rather be accumalating the cash and working as much as I can.

I hope this answers some of your points, if not ask away.


The Executioner said...

"There is nothing to do in the city if one doesn't work"?

Definitely a situation you need to remedy! I know some people who could never live anywhere BUT the city because (in their own words) "there is nothing to do outside the city". Personally, though, I'd rather live far from the city limits and enjoy the recreation opportunities offered by the mountains, forests, and streams.

What do you plan to do during your sabbatical?

Claire said...

Hi Executioner

Well theres nothing that I want to do in the city and there is nothing to do that doesnt cost money. What to do in the city? shopping, dining, going to bars, clubbing, been there sort of done all that, it just doesnt fill the void anymore. Also I find the city quite inpersonal, no like minded people, just people working away at 9-5 jobs and "socialising" on a superficial basis in souless bars/pubs.

I love the outdoors, the dream is to one day settle in a small town somewhere, perhaps even be part of a community where i can have land, grow my own food, have dogs and animals, have a boat, go wandering in the mountains, ahh I can see it now, freedom..

The sabatical - well I want to do some travelling in europe and accross the states/canada, visit california and drive a VW camper, that sort of thing. The aim of it is really to find our place in the world, somewhere to maybe put down roots and buy a home, thats my dream anyway.

Homeless said...

Once you get on your sabbatical, you wont want it to end. My other half and I are enjoying our sabbatical/new lifestyle. We are in our early 30s, have no kids, nor any debt and travel around the US in our truck camper. Its great!

I am not sure what it is like in Europe, but once you get to the US, there are tons of forests to stay in for free. If you keep your spending in check, you can make the trip last for a long time. It sounds like you already know how to do that.

Best wishes to you guys in escaping the monotonous grind.

Hitek Homeless