This question might plague doctors as if they were living in England in the 14th century. For you non-historians, that was the century of the Bubonic plague.
Anyways, there are plenty of reasons why you should or should not pay off your mortgage early. In fact, it’s almost guaranteed your financial advisor has told you to pay it off or to wait.
To add on that:
It’s even more guaranteed your financial advisor has told you to invest and to wait on paying off that mortgage. We’ll get more into that later, however.
Quick financial thinking tells you the following… The faster you pay off your loan, the more money you save on interest. It’s quite simple, but here’s an infographic for those visual learners out there:
Finances are never this simple. There are plenty of other factors you need to consider, especially as a doctor, before you pay off your mortgage early.
Without further ado, let’s get into the thick of this:
Four Things to Consider
Before you make the leap to pay off that mortgage early, consider the following:
Are You on Track for Retirement?
For doctors, planning for retirement is as important as just about anything. Perhaps you’re in internal medicine and making a solid $250k a year. When you’re retired, you’re going to want to be able to continue living that $250k lifestyle.
So, before you plan on paying that mortgage, consider whether you’re on track for retirement. Many financial experts recommend contributing more money toward your retirement plan before paying off a mortgage.
These contributions you make an offer you tax breaks. Also, your money will have more time to grow in your retirement fund. The sooner you contribute, the more you’ll have in the long run.
Do You Have Emergency Savings?
Another thing you should consider before paying the mortgage is if you have emergency savings. This savings account is set aside to deal with any unforeseen, unfortunate circumstances.
If you don’t have emergency savings, you might want to acquire one before paying the mortgage. You have time to pay off your mortgage. You don’t have time to save for an emergency; they can occur when least expected.
As a doctor, you’ve seen unforeseen circumstances play out. Some or many, patients you’ve treated have likely fallen victim to an unexpected tragedy. It’s best you plan for this, as well.
Do You Have Any Higher-Rate Debts?
As a doctor, you likely do. Medical school ain’t cheap, after all.
If you still owe on student debt, pay it off first. If you have the money to pay your mortgage, you likely have the money to at least pay away a substantial amount of your student loan.
Don’t forget about those credit cards. With cards accruing interest rates as high as 16%, you’d better pay those off first.
Do You Have Proper Insurance?
If you’re a doctor working on locum tenens, you may not have adequate benefits. It’s important to secure proper health, dental, and life insurance. Do this before paying off that mortgage.
The Mathematical Answer
The mathematician (or financial guru) will tell you to keep your mortgage. Why? Because math supports their argument.
The recent era of low mortgage rates and high stock market returns means this: keep your mortgage. Investing in the market and keeping that mortgage allows you to continue to add to your net worth.
The Rich Doctor’s Answer
However, the decision to pay off a mortgage early also hinges on the person’s salary.
An orthopedic surgeon might want to pay off their mortgage early. Why? Because they’re making over $700k a year. Their salary matters because they believe they won’t have trouble making up the money they just spent on their mortgage.
Paying off their mortgage also allows them greater financial freedom. Now that they don’t have any debt to worry about, they’re free to invest more aggressively. This can offer them an easier path to financial independence.
Some people want their money to work hard for them in investments, other people enjoy the psychological benefits of paying their mortgage early. Many people feel relieved to rid themselves of their mortgage payments.
Like the rich doctor scenario above, they’re more confident in making risky investments that pay off big. Also, they simply sleep better at night and enjoy their days more.
Because that mortgage monkey is off their back. If you find yourself constantly sweating your mortgage, perhaps it’d be best to pay it off. Not just financially, but psychologically.
Math Isn’t Always Right
While the statistics show that the stock market has, on average, earned returns of 10% since its inception, it’s not that simple. Financial advisors will tell you not to pay off your mortgage because you can earn higher returns in investments.
Of course, financial advisors may forget to tell you that the stock market is extremely volatile. While most people average returns around 8%, that doesn’t mean it’s normal.
If you have the money to pay off your mortgage and have considered the four things listed earlier, you should pay it off.
The savvy investor should consider keeping their mortgage.
With that said, it really is dependent on your situation. Not all doctors are in the same financial spot.
Listen to this:
Doctors are already heavily categorized and treated as one entity. To say all doctors should or shouldn’t pay off their mortgage would be erroneous and unfair.
As a doctor, you need to consider the information in this article and make the decision that appears right for you. Not as a doctor but as an individual.
With that said:
What do you think about paying off your mortgage? Did you pay it off early and regret it? Or vice versa? Do you have any mortgage advice of your own?
Feel free to drop a comment below and let us know!