Paying Off the Mortgage as a Debt Safety Net

Paying Off the Mortgage as a Debt Safety Net

The past month or so I have been dealing with a lot of numbers in my head and not in a good way. For the first time in over a year I have gone back into credit card debt and now have to dig my way out because of unforseen expenses. I also admit that I am probably getting a little debt fatigue. It seems like I have been battling this forever (even though it has only been a few years since we got married) and seeing little progress. I know that it is not true, but I have spent the past week with a lack of sleep trying to figure out a way to get out of this mess quicker.

For example, I thought well maybe if I took some of our home equity, paid off my student loans, and then refinanced to a 15-year mortgage then I could get rid of some of the debt. The problem with that is that I would actually INCREASE our expenses each month. Part of the reason for that is that Mrs. ROB’s student loans, under the REPAYE plan, will always be 10% of our discretionary income. Currently, they are 10% of both our student loans combined. If I get rid of mine, I actually don’t reduce the debt because her payment will just increase and replace what I was paying. I would just be moving money around.

Additionally, one of the things that I have been thinking about it what if we don’t make it to PSLF? I mean I have 8 more years to go. That is at least $40,000 in student loan payments. Mrs. ROB has 7 years to go. Financially, continuing with PSLF is the best thing for our family but 8 more years of being in student loan debt while I continue to save for retirement seems like just a never ending slog that I will never get out of. Moreover, what if one of us doesn’t reach it with our job. Currently, Mrs. ROB is an adjunct professor who has cobbled together a nice income with her job, but what if she doesn’t get enough classes? What if she wants to change careers and move to the private sector? What if she wants to stay home, work part-time and take care of the kids we want to have (no luck on that front by the way….more on that later)? The thing I want for Mrs. ROB is to be happy. Having her stay as an adjunct professor and hope she gets classes every semester isn’t necessarily a good life plan. But if she goes to the private sector then what do we do about her student loans? She would lose her PSLF eligibility and it would take over 20 more years to pay those bad boys off (maybe sooner) but 20 with general loan forgiveness?

Enter the Potential Solution

To me it seems the solution to this conundrum is to basically pay down our mortgage a lot earlier. We already have it on a 12 year mortgage at 2.875% (now 11 years) with about $146k left. Our home is worth (I think) about 215-220. My idea is that if we pay down the mortgage substantially like 100k in 5 years or less than we could use that as a possible safety net to pay off the student loans.

What that would mean is that I would have to do a cash-out refinance of the mortgage to get rid rid of Mrs. ROB’s student loans and then just pay down the mortgage from there.

My problem with this strategy (I told you I play monetary mental gymnastics with myself ALL of the time) is that I don’t want to give up saving as much money as I have been already. I might not have a choice because of some upcoming financial difficulties. I don’t want to blog about them quite yet until we know if they will be resolved. Also, a 2.875% mortgage is SUPER cheap. I mean that is a great rate and mathematically I should milk that bad boy for as long as I can.

I guess I want to have some kind of back up plan. What do you think of my potential solution? What might you do in my situation?


2 thoughts on “Paying Off the Mortgage as a Debt Safety Net

  1. Seems pretty reasonable. The catch is that you’re relying on being able to refinance (with a home-equity line of credit (HELOC) or replacement mortgage) on down the road. Do you plan to keep actively employed through then?

    My wife and I both earned well and enjoyed employment when we decided to pay down mortgage fast in this situation. (We carried no debts into marriage.) We completed the payoff by moving to a cheaper part of the country, and bought our current home outright to return to being a one-income household. Fast-forward eight years; we opened a HELOC to draw some of that equity for business investment and smoothing cash-flow for children’s college expenses.

    We were pretty certain we could do the HELOC, because my wife wanted to get back into the job market when the youngest child was in elementary school. We were dual-income for awhile, then back to one-income when I made a trial run of “early retirement”.

    I’m going back in because of a realized financial difficulty, like you’re staring down. All said and done, if that difficulty had been looming when we moved, for flexibility, we’d have gotten a mortgage, and invested most of it for current income and potential sale to clear the difficulty. Once it got cleared or wouldn’t realize, we’d sell enough to clear the mortgage and go back to one-income life.

    I really enjoyed the extra cash-flow flexibility while we were still debt-free. I’m a big fan of keeping one’s options open when there’s no obvious winning path to hand. Perhaps keep the loans as they are, invest into after-tax accounts, then decide once you hit “student loan pay-off lump sum” whether to pay them off to open up further options.

    Yes, it’s a slog, thankfully *finite*. No getting around that without debt forgiveness, sudden income windfalls, and/or down-and-dirty grit-your-teeth expense reductions.

    1. Hi Sabbaticalia,

      You have a lot of great stuff here. I do plan on working for quite a while primarily because I really love my job. As a professor I have excellent stability and wouldn’t lose my income anytime soon. In terms of what we are going to do part of this will depends on a job search that Mrs. ROB is doing at the moment, while also trying to have kids, which is another topic altogether. I actually am thinking about writing a blog post talking about potentially using a HELOC as an emergency fund and using the money we have saved to pay off some of this debt (not much). I think I just need to do a thorough think through and it might look like this:
      1) Pay off the credit card with savings
      2) Pay for an electrical panel upgrade that needs to be done (safety hazard)
      3) Use the rest of the funds to pay down the car loan
      4) Focus on paying off the car loan with any extra money
      5) When that car loan is paid off then I can throw extra money into the mortgage or as you said after tax accounts (which I handed thought of) to potentially pay off that debt sooner. This might make more sense because having a mortgage at 2.875% interest is cheap and by paying extra on the mortgage I lose the opportunity cost of putting money into a brokerage account. Maybe I call that mutual fund/account as Mrs. ROB’s loan payoff and let it grow.

      Some of this is up in there because of life happenings, but I do have options I probably just have to choose one and go with that. That would be better for me and my family. Thanks for stopping by.

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