Thursday, October 9, 2014

Why We Paid Off Our Mortgage

My husband and I paid off our house in six years of marriage. We owed $160,000 on our mortgage at the time. I also owed about $6,000 for school loans that we paid off within the first year of marriage. Scott (my husband) had some school loans but they would be paid off through a grant program as he taught at a low income school district in Ca. That was all our debt. We didn't, and still don't, do credit cards and we pay cash for vehicles.

Early on we wrestled with the idea of paying our house off because of the tax deduction we got for having a mortgage. Dave Ramsey helped us out with that decision though:

"If you have the opportunity to pay off your home and you don’t pay off your home in order to keep the tax deduction, that would be an indication that you are poor at mathematics. Let me help you with the mathematics on this. Let’s say you have a $200,000 mortgage at 5% interest. If you have a $200,000 mortgage at 5%, that would be $10,000. We have a $10,000 tax write-off because we have a $200,000 mortgage at 5%. That’s a tax deduction, meaning if that couple makes $75,000 a year and they take a $10,000 tax deduction, they don’t pay taxes on $75,000. They instead pay taxes on $65,000. If you do this weird Dave Ramsey thing, though, and you pay off the house, you no longer pay taxes on $65,000 because you would not have a tax deduction. You’d have to pay taxes on $75,000. You’re in a 25% tax bracket if you make $75,000 a year. That $10,000 a year that we’re talking about is taxed at 25%. By paying off your home, 25% of that $10,000 that you’re going to have to pay extra taxes on is $2,500. In essence, you lost a $2,500 savings on your tax bill, but you gained $10,000 by not having to pay it to the bank. A $10,000 tax deduction is the same thing as saying, 'I would rather give Countrywide $10,000 than give the government $2,500.'"

In other words you would be saving $2,500 to spend $10,000... that don't make no sense!

Even aside from Dave Ramsey's advice, it sickened Scott and I to see how much we would actually pay the bank at the end of our 30 year mortgage. Our paperwork showed that we would end up paying them back OVER $300,000!! Crazy! We would lose about $150,000! Imagine what our family... any family... could do with $150,000! We'll keep that for ourselves thank you.

The next thing that was appealing was just the THOUGHT of being DEBT FREE!!! Oh what a joy that would be to owe no man anything! Now that we are living that debt free life I can tell you there is so much freedom on the other side of owing people money.

The final thing for me that made me want to pay off our mortgage and be officially debt free were these seven simple words from Proverbs 22:7: "the borrower is slave to the lender."

I don't want to be a slave to anyone but Christ.  

I will be posting again some time next week on some tips/how we did it practically on one income!

Here is the link to HOW we paid it off!