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I'd split the baby and look to pay it off in 10 years. I'd put a decent chunk into college savings for each child as an egg to grow for compounding purposes and throw the rest at the mortgage. This is assuming however that you have no other debt, you have an emergency fund, and your retirement is currently being fully funded. I might put aside $2-3K to go on a family vacation and maybe save some money creatively over the next year or two and do a great vacation in the near future.

You are only able to get equity out of the house if you sell it or borrow against it. It makes no sense to me from a financial standpoint to pay off a home at a reasonable interest rate if you know 100% you will have to borrow from that equity in the future. Interest rates are the lowest they have ever been and undoubtedly you will have to borrow that equity at a higher coupon.

I think there is definitely a middle ground as @gingerbebe: alluded to. I would feel uncomfortable with a client doing as you are describing, especially if it put them in a situation where most of their net worth was inside their home.

What is your current mortgage time period? I would consider refing it to a amount you can comfortably do (maybe throwing in some more cash to bring it down) and then start back saving towards education. I think your rate would be around 3.5% if you did a 15 year. This is also assuming you have a healthy emergency reserve and are taking full advantage of all retirement matches provided by your employer.

Not at the expense of retirement and college account funding. Those things, if invested well, should average greater than 4.125% annually so it doesn't make financial sense to pay down the loan rather than invest. That being said, you have to commit that the money that would have gone towards paying down the house will instead be invested. If you are just going to spend it, then yes, you're better off to pay down the house.

The thought of having my house paid off well before college and retirement years sounds amazing. It is really hard to live in penny pinching mode forever though. I do well when I can celebrate savings milestones along the way.

@jetsa: I assumed you would have to in order to cover college costs. If you have figured out how to make all of your priorities work and the interest savings outweighs the college cost earnings, then go for it.

ETA: Just saw your edits. I personally would make extra principal payments and find a middle ground. It's much easier to skip a month for a vacation, etc and still make a considerable impact on your mortgage. Depending on what kind of numbers we're talking, it's hard for me to gauge whether the $22k in interest would be made up for in lost college cost savings.

I voted bananas. You should definitely continue "pinching pennies" e.g. continuing your comfortable-and-happy-but-not-too-spendy lifestyle, but I would use the money for a more savvy purpose than paying off a low-interest mortgage. A good 529 will pay off much better, since college costs are going to skyrocket between now and when your LO will attend, and retirement savings should also be a priority. I would definitely pay more than just your minimum mortgage payment every month, but not as aggressive a schedule as 5 year payoff would require. There are smarter ways to invest your money.

@jetsa: I totally get it - being debt free is our dream/goal too. But a lot of things can happen in 5 years! I would get very good long term disability and life insurance plans for both of you if you haven't already snagged it at the low rates you'd get at this age and yeah I would put a fat piece into college savings. If you put $5000 down now it will probably triple in the next 15 years at returns higher than your mortgage. If your plan was 10 years, then shoot for 7 which is still cutting your timeline and putting a chunk away for your kids. It's like free money. In a few years you can refi on an 3 or 5 year ARM mortgage and just pay it off before the rate jumps to save more money.

With some caveats.

I would make sure we had 6 months of living expenses in savings.

I would pay off any other debt.

I would make sure that our retirement funds were maxed out annually.

I would put a modest amount in the kids 529 plans.

I would roll the rest into paying down the mortgage as soon as possible.

Nice work!!

@PurplePumps: agree - financially refi makes sense even if you save .25% -- that's if you get a deal with no points and no closing costs. it takes some time to get together the paperwork needed but if it's "free" there's really no reason not to?

One other part of this you may not have considered is the educational value of the exercise to your children. DH and I debate this from time to time - the pros and cons of pinching those pennies now while the kids are young and don't really notice "going without" or growing your wealth a little more slowly as your family grows and have your kids actually witness and see all the hard work it takes to be financially savvy. There's no wrong or right way, but its something to ponder.

I think it would be really cool for my kids to remember working hard to reach a huge family milestone - to be able to involve my kids in things like "TODAY IS THE DAY WE PAY THE BANK TO BUY OUR HOUSE FOREVER!" or whatever. Or working together to save coins to fill a big jar for vacations.

Also, I think vacations are important for the adults to motivate and recharge, but I don't really think they are that important for kids until they are like school age. Like its great if we can do it, but I'm not heartbroken if my kids don't get a big fat vacation until they are like 5 or older. They would be just as happy with day trips and good quality family time until then.

I don't have a mortgage, so maybe take it with a grain of salt, but if you have any place to put money to compound and to save for the future, to me, that takes priority over paying off a mortgage (especially with a fairly low interest rate) early. Simply because the value of compounding starts early.

Sounds like you've done everything on that front except 529s, so I'd figure out how much you want to put in the 529s and roll the rest into extra payments.

There's nothing wrong with penny pinching, but if you see opportunities to make memories on reasonably-priced vacations, that will be worth more than having a house paid off really early. At least it would be to me!

What is the status of the liquidity of your savings? As in, if you needed 10K, 15K, 20K, 50K etc etc, IMMEDIATLEY could you easily pull it out for an emergency? If there was a job loss? If you have an emergency fund, should it be larger than it is? And is the money you have saved easily accessible?
I'd lean towards not paying off the mortgage unless you could feel totally comfortable pulling a lot of money out of savings at once if you needed to.

@jetsa: Well, I posted about something similar-ish earlier My husband would say pay off the house! I would say, if you have everything else lined up, why not pay off the house? But yeah, it would depend on how extreme the pinching pennies phase is. I've been slightly unhappy with the amount of penny pinching we have been doing lately, so I want to come to a compromise with my husband and meet somewhere in the middle.

We already fully fund 401ks, and my pension, and Dh has a few IRAs and mutual funds. We have the liquid savings, 6 months-1 year. The only thing we don't have is a big 529 fund for the girls, so I think we will have to sit down and run some numbers and look at actual return rates of various 529 plans lately and compare what we could be making in a 529 to what we will save in interest by paying off the mortgage 20 years early.

We also have to figure out childcare for next school year. Since we could put our kids in aftercare/full time daycare instead of have our nanny and save 1k a month, theoretically we could continue to pay off the house super fast and have 1k a month to put into a college fund starting in Sept. But I have to figure out if I can mentally take the hamster wheel of 1 hour commute each way, two kids, two full time working parents with very inflexible jobs, two different drop offs and pick ups, etc etc etc.

That's where I have to try to quantify the importance of my happiness vs the importance of making the best financial decisions. And I also have to factor in my husband's happiness, when the things that make us happy are at odds with each other, haha.

It's tough! One good thing is you can make a decision for now and then make changes if it isn't working out.

I wouldn't. But that's because our house is not our forever home and the market here is nuts so it woild be easy to sell if we wanted/needed cash. I also am not averse to "good debts of the sort that is at a super low interest rate, gets us more tax deductions, etc. There are both more fun (life is short!) and better financial things for us to do with it.