Debt Free by Forty: Why I Chose to Pay Off My Mortgage

Debt free by forty. That’s the goal I set. I liked the sound of it and at some point in my mid-thirties, I realized it was a possibility for us.

When I said debt-free, I didn’t mean having a zero or positive net worth with assets equal or greater than debts. I meant I didn’t want to owe nothing to nobody. Positive net worth, zero debt.

My decision wasn’t based on mathematical modeling. I didn’t cycle different scenarios through a spreadsheeet.

It was a personal decision. A psychological decision. Nothing more.

I had taken on some serious debt and paid some serious interest. While chipping away at my student loan debt, I added a half-million dollar construction loan. With an initial interest rate above 5%, I was on the hook to pay more than $25,000 a year in interest on that loan alone (getting some of that back as a tax deduction at the marginal tax rate).

I wanted to be done paying interest. I wanted to truly own the things I pretended to own and I wanted it to happen by my fortieth birthday.


It almost didn’t happen.


The Math Behind Paying Off Your Mortgage


For the most part, I ignored the math, although I knew in my head what the consequences of mortgage payoff would be.

our “starter home”

At a 5% interest rate and a 40% marginal tax rate, I was effectively paying about 3% a year on the principal. This was true because I had itemized deductions.

If you take the standard deduction, which will be much more common with the increased standard deduction resulting from the Tax Cut and Jobs Act, you are paying the full mortgage interest rate, getting no deduction on the interest you pay.

If your itemized deductions barely surpass the standard deduction, you’re essentially deducting very little of your mortgage interest. It’s good to know where you’re at with deductions.

Back to the math, where I had plenty of itemized deductions. Assuming the principal that I owe is working for me and invested in my portfolio, I would need at least 3% returns in a given year to break even on carrying the mortgage.

Perform better than that (should happen) and carrying the mortgage wins. Underperform 3% returns (tough to get a guaranteed 3%) and mortgage payoff wins.

The math is simple. With today’s low (but climbing) interest rates, I would say carrying the mortgage wins more often than not from a probability standpoint. From a psychological standpoint, being debt-free is a state of being that has significant value that’s much more difficult to quantify.

I chose the option to be debt-free and haven’t regretted it one bit.


The Math Behind Paying Off Student Loans


The other heavy debt burden carried by many of us are student loans. The payoff calculations are similar, but not identical for the high-income professional.

In the lower tax brackets, student loan interest is tax deductible. The deduction is phased out at an adjusted gross income of $70,000 to $85,000 for individuals in 2019 (double that if married, filing jointly), an income most physicians will exceed.

Just like the tax filer who takes the standard deduction pays full fare for mortgage interest, those of us with strong salaries pay every penny of our student loan interest without a tax benefit.

If your loans are at 6.8% and you are not pursuing a loan forgiveness plan like PSLF, you should consider refinancing your loans Otherwise, at that high interest rate, you would need returns exceeding 6.8% to break even on carrying those.

I had consolidated my student loans to a low interest rate, but chose to pay them off with a lump sum that came in the form of a signing bonus a few years shy of my fortieth birthday.


The Plan to Be Debt Free


Every goal needs a good plan, and mine evolved as our situation changed. We actually moved a couple of times and bought a couple more homes. It’s a long story.

Learn how to better manage your student loan debt, and explore refinancing to a lower rate with cash back offers! Student Loan Resource Page
For several years, we steadfastly refused to give up our dream home even though we were living and working a couple of states away. We had long term renters, we had seasonal renters, and we even used the place some ourselves.

Eventually, though, we realized we were holding on to the past which was making life in the present more difficult and potentially jeopardizing our future as we were basically hemorrhaging money. I had been funneling all my locums earnings towards the mortgage, but the balance was around a quarter million, and wasn’t going to disappear soon.

Meanwhile, we bought the home we currently live in for half of what we put into that dream home, paying cash. When I was about 39.8 years old, after about a year and a half on the market, we finally sold the one-time dream home for a $200,000 loss plus realtor fees. 4,000 square foot waterfront homes don’t sell as well after the only hospital in town shuts down.


Dream House Sunset

i do miss those sunsets


The day we closed was one of the worst and best days of my life, financially speaking. We lost a ton of money that day (or at least realized the loss). We also became free.

Although I could have considered us to be financially independent based on the home equity, it didn’t feel real until the home was sold and the money was in our hands.

A couple years earlier, I paid off the last of my student loan debt with a lump sum payment from a generous signing bonus. When we sold the house 10 weeks shy of my fortieth birthday, we were officially 100% debt free.


Should You Pay Off Your Loans or Invest the Difference?


Many a blog post and forum thread has been written addressing the question, and I could fill a page with links to the various discussions on the hot topic. I won’t do that to you, but here are a few:


Ultimately, the answer depends on a number of factors. Some are simple math. Are they high-interest loans? Is the interest tax deductible and are you in a high tax bracket? Do you think you can get a better return elsewhere?

How much interest are you earning in your checking and savings accounts? Explore accounts offering 20x what many banks are offering. High Interest Savings Accounts
Other factors depend more on personality and security. How would you feel if you eradicated all debt? How many years do you want to live in debt to a bank or government entity?

While I likely would have come out ahead if I had drawn out my student loan payments, taken out a mortgage on our current home, and invested the difference, I don’t really care. We only know this in hindsight. The market has performed well in recent years, and after I paid off my debts, I had plenty of money to invest.

Yes, I sleep well at night. Not on a huge pile of money (sounds uncomfortable, honestly), but not under a crushing pile of debt, either.


How much would it cost you to pay off your loans?


Track your investments for free with Personal Capital. That's how I track the PoF portfolio.  


Do you have dreams of being debt free? Have you realized them already? Do you choose to use your low interest loans as leverage to invest in the markets? Let me know below!




  • I love this!

    My wife and I got 100% debt-free at age 44. Similar story… sold the big waterfront home (and I LOVE fishing :<) and paid cash for something about 1/2 the size and 1/4 the cost.

    I've been in the "but the math shows" debate many times. It's more than just math though – it's lowered risk and peace of mind. We love being debt-free! Especially now in early-retirement. It removes so much potential stress from our lives.

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  • We are constantly flipping and flopping over the decision to pay off our mortgage or not. Granted, our rate is 2.7% on a 15-year mortgage, so I know it sounds ridiculous to most people that we’re considering paying it off. But, we’re not most people. We want the debt gone. So right now, we’re in the “pay it off” camp. I want our monthly expenses to be as low as possible. And since the mortgage is our biggest expense, it needs to go. To us, it represents freedom and better sleep!

  • We take a balanced approach. I view our mortgage as a bond. Any extra money into it is the same as my bond allocation, currently set at around 20 percent. This is also in line with my overall risk tolerance.

  • YoungMD

    I started out with a 30 acre ranch still in residency (can’t get much dumber)….. no cattle. I finally sold it for a small profit…. Now I live well below my means. My new house was paid for in cash with one year’s pay (primary care practice with a large helping of cosmetic procedures).
    I’ve never slept better.

    • How on earth could you afford 30 acres as a resident, YoungMD? Are you related to YoungMC?

      Glad you saw the error of your ways, still made a profit, and found an affordable home that makes you happy. Our current home cost us about one year’s after-tax salary, too.


      • YoungMD

        In early 2000’s, hospitals would pay primary care doctors to set up practices. I got student loan repayment and $300k, and then spent it all like a drunken sailor financing everything. I sold the house in 2004 before the housing collapse.
        My financial missteps were TNTC. I finally found Dave Ramsey and a few years ago started reading MMM. Then I saw you’re blog and started the FIRE path.
        I should probably change my YoungMD handle and email, I’ve had them since 1998. Keep up the good work.

  • saveinvestbecomefree

    For what it’s worth, I also think you made the right choice and I’ve written a detailed article on why paying the mortgage is better. For the math, you need to compare the mortgage rate to a “safe” investment return like US treasuries. You cannot compare it to stocks because they are different risk profiles. Paying off a mortgage is a “safe” return on your money. To beat this, you need to find an equally safe investment that returns more…..good luck with that. There is a reason mortgage companies are happy to lend you their money.

    Also, you need to account for taxes if you invest the money instead of pay your mortgage. At a doctor income, your investment tax rate will be at least 23.8%. So your 3% (with interest deduction) mortgage example requires a 4% safe investment return to break even. Your student loan example at 6.8% requires a safe investment return of 8.9%!

    Paying down debt is a great financial decision. Surveys show that those who pay off their mortgage retire earlier than those that don’t. It should be the opposite if you actually made more money by using the mortgage money as an investment margin account.

    Lastly, any temptation to take out a new loan on your now-paid-for house and invest it in the stock market? Didn’t think so. For those that still have a mortgage, how do you feel about this question? If your answer would be no, then why are you ok with your mortgage now? Also, if you own any bonds, why carry a mortgage? You get a much better return paying a mortgage than bonds are paying right now. These are useful (and profitable) things to really think through.

    • Great comment!

      Excellent point on matching risk profiles and factoring in all taxes when trying to compare apples to apples.

      I haven’t once considered taking out a HELOC to invest more in the markets. If we sell this home, I will, but I’m not about to use it as leverage.


      • HarjotSingh

        This point that saveinvestbecomefree said here, plus what FTF said above, and recently WCI mentioned somewhere about mortgage being a bond- have all helped bring clarity to me about this confusing topic. It makes so much more sense now. Thank you all!

  • We just refinanced for 2.75% – 7/1 ARM – so for the next 6.5ish years I don’t see us paying down the mortgage any faster – focusing on wealth creation, trusting the math side with long term stock market returns.

    I get the itch to be 100% debt free though, at some point we will switch to cutting down expenses and the mortgage will be a logical target.

    • Interesting, AE — I see that 7/1 ARM as a potentially ticking time bomb. I don’t know how rapidly the bank can raise the rates after the seven years is up, but you might want to have a low mortgage balance that you could pay off by then. Going rates could be double or triple in 7 years.


      • It’s possible, but if I start to see that trend I can Refi again at a locked rate for either 15 or 30 years.

        My refi dropped me from 4.25 to 2.75 – hard to pass up even if it’s only for 7 years.

  • Hatton1

    The day you know you have no debt is a cause for celebration. Who cares about credit scores when you know you will never borrow money again!☺️ Interesting factoid. My first housing purchase was a townhouse and carried 11% interest rate in1987. My how things change.

  • Thanks for voicing your plans! We’re also paying off our mortgage and it seems like it’s a point of contention in the FIRE community. But we’ve run the numbers countless times, and it makes sense to have a paid-off house for early retirement. We plan to live in the same house for a few decades, so it makes sense to have it paid off early. By my calculations, we’ll be able to pay off our $145k mortgage in 8 years or so. Woop woop!

  • I want to be debt free by 40… I’d love to not have a mortgage and be able to spend less than 10k on housing a year (insurance, property taxes, maintenance, etc.)

    Great thoughts. I have a 2.625% interest rate on my house through a 5/1 ARM. I’m getting some nice cash savings, but at the same time, I’d love that to be a 0% rate (aka paid off!)

    • It’s impressive how much you can still spend on housing even after you’ve paid off the mortgage. It’s tempting to use the money previously set aside for mortgage payments to home improvement.

      We paid cash for our current home. In three years, we’ve hired people to paint the home and garage, reshingle the garage, and rebuild a massive retaining wall to keep our lawn from plummeting into the river. We had the old deck torn off and a new one built. Sure, we’ll get some of that money back when we sell, but definitely not all.


      • Frank

        Yes but most people will do all that with a home equity line AND have a mortgage for 30 years. Can’t tell you how many people I know that buy a monster house and in 2 years are taking out a line of credit to “update” the basement. As long as you are saving and can pay cash you’re still way ahead in the game.

  • This is a very important article. By paying off the mortgage, you guaranteed a rate of return of 5% since you are not paying it to the bank. I hope this motivates others to follow suit!

  • DruggedZebra

    I’m on board with paying off the mortgage. The investment side only works if you actually invest (and keep) that money in the market. History shows that people do a poor job of putting that money to work, so you end up paying the mortgage without getting any investment gains…A lose-lose situation.

    • Thanks for the thought, DZ. I hope most of my readers are more disciplined that, but I absolutely agree that money put towards the mortgage principal cannot be spent once you’ve sent the check in.


  • I’ll be doing my best to pay down my properties before I hit FIRE. I like the idea of keeping all the rent money each month, rather then sending most of it on to the mortgage company. We’ll see if I’m able to pull that off, though.

  • As they like to say on Bogleheads, when you’ve won the game, why play? You’re financial independent in your early 40s, so while (as you write) you would probably be mathematically better off to keep a mortgage, psychologically being debt-free is way better.

  • Great food for thought! I’m glad I didn’t pay down the mortgage faster than I had to. Over the last few years, equity, my equity options trading and real estate returns pretty handily beat the mortgage interest rate. Going forward, though we’ll have to live with leaner expected returns. Bogle now expects 4% (nominal!) for stocks. It may not be worth the extra volatility.
    A word about the tax deduction: True, only the amount above the standard deduction is effectively deductible (close to $13k for married filing jointly) unless people have many other deductions. But the math changes when AMT (Alternative minimum tax) kicks in. We are deep in the AMT and for us, the full mortgage interest payment is deductible at our marginal tax rate.

    • Good point about the AMT, Big ERN. I’ve been paying the AMT for years.

      In hindsight, you’re glad you’ve remained invested with that money rather than paying down the mortgage, but as another commenter pointed out, the mortgage rate is guaranteed whereas the options strategy and real estate investments are far from it.


  • Dad Dollars Debts

    Looks like you and I were/are in the same boat. Consider it a back to the future.

    Dream House check. I have a sunset view to and this is likely my biggest hinderance to financial independence. I am giving it 5 years to see how much progress I make on the mortgage, how big our family becomes, etc. and then may decide to down size. That would make me debt free by 41 (so not too bad).

    Desire to be debt free check. School loans are melting away and then it is the mortgage. I will not longer be shackled by the man!

    Loss on prior home sells check. $24K so a little better off then you.

    Thanks for sharing. It is always nice to hear people who also make poor math decisions in search of happier lives.

    • You know, I would have been happy in that house if there were still a job in that town for me. As long as you’re happy there in your job, there’s no reason to think you made a bad choice. I’ve also read somewhere that having one of the nicer homes in the neighborhood is a recipe for happiness, even if it’s not the most financially sound “investment.”


  • This is something I think about regularly. I finally have a nicely positive net worth after almost two years of full-time work as a physician, but I still have >$100,000 of student loan debt (at 2.8%). Mathematically, it makes way more sense to keep investing, particularly given that I can get huge tax deductions through RRSPs and incorporation, but there is a huge part of me that would love to see the student loan gone. I may start throwing an extra bit of money at it every month just to see it disappear a bit sooner than planned.

    • Strong work, SD.

      It doesn’t have to be either / or. It might be a wise move to put more than the minimum towards the student loans while continuing to invest at an adequate level. Put your soldiers to work on both fronts.


  • Xrayvsn

    Paying off the mortgage was one of the greatest financial achievements I have experienced so far in my life. I went through a similar process of weighing pros and cons of either fast tracking paying the mortgage down or using the money in other ways.

    I had a 30 yr mortgage at a 5.625% interest rate (initially for 500k) and also had about 100k in student loans at a higher interest rates (approx 6-8%). I attacked the student loans first and then the mortgage which I ended up paying completely off at year 10 of the loan.

    Like you I figured after tax deductions etc I was going to save a little over 3% effective interest by paying off mortgage. Could I have invested it and made more? Certainly. But there was also a possibility I could have lost more depending on cycle of the market. I even went into more advanced pros/cons by considering the money I put into it today is worth more than the money I would have put into it at end of loan (a dollar today would have more purchasing power than a dollar I would use to pay it at year 30 of the loan).

    Others would also mention why pay your mortgage down because it’s a tax deduction (I never figure how some people think paying someone a dollar in interest to get 40 cent back is justification to be in debt)

    But in the end you hit it right on the head about the psychological benefit of paying off the loan. There is nothing better than mowing your lawn when you know that every blade of grass you cut is yours and not the bank’s. And once that loan was paid off, it freed up a lot more money that I then used to aggressively save in my taxable account (after maxing out the tax deferred accounts). Another fun activity was after I paid off the house and received the title I actually printed out the original planned amortization schedule and figured by paying off the loan 20 yrs early I saved around $350k in interest.

    Being debt free definitely gives you peace of mind. If some economical hardship was to occur, I have a lot more leeway to cope without some large fixed expense weighing over my head.

    • Great story, Xrayvsn!

      Let me guess, radiologist?

      It’s incredible how much interest you can shave off by paying extra on the principal early on. Particularly in a 30 year mortgage, the early years’ payments go mostly to pay interest, without much going towards principal.

      At dinner this evening, we told our 1st and 2nd grade boys about someone who is buying a house, then went on to explain how a mortgage works. I don’t know if they’ll retain much, but my younger son now wants to be a banker to collect all that interest!


      • Xrayvsn

        Great (and correct guess). Guilty as charged, I’m a radiologist. Thanks for the informative posts you and WCI put out there. Really has changed my life (I made a lot of the mistakes you both warn about in past (my defense these blogs were not around then) but thanks to living below means and a great offense (salary) I really have set myself up for early retirement (currently 45, looking at 55 or so for myself). If it was not for an awful divorce (which I commented on a post of yours about divorce) I could have easily hung up the cleats right now.

  • grbkeb

    Congrats on being completely debt free! You’ll never regret it! Funny how you are a lake person too. I paid off my first lakefront home when I was 32, everybody thought I was crazy…which I probably was because 10 years later I sold it for a loss in order to purchase my dream lakefront home out of foreclosure during the last housing crisis. Paid cash, it has subsequently double in value, but being debt free and having cash/liquidity to act when opportunities arise with any investment or life event has served me well. No doubt the “math” says lever the hell out of it, but the goal for me isn’t to eek out every last dollar of return. I’m going on 15 years of never having a debt and paying cash for each purchase, best decision for my overall happiness and net worth I ever made.

    • Brilliant move buying the dream home after prices plummeted. Sometimes it can play to time the market, particularly the real estate market, which tends to have less volatility than the stock market.


  • That house on the lake is gorgeous, I can see how that must have been hard to get rid off.

    Thus far neither Mr. BITA nor I have felt the psychological need to be debt free (the only debt we carry is the mortgage for the home we live in). Our interest rate is low and like ERN we are in AMT territory, so we’re aren’t going to try to pay off our mortgage post-haste. Not yet at least.

    • Thanks, Mrs. BITA. It’s a personal decision, and to be honest, I don’t blame anyone for wanting to hang on to a low interest mortgage for as long as possible, particularly with interest rates now rising.


  • Jon Appino

    We paid ours off in March (wife is 37 and I am 38)! Wife is retiring (at 37) in June! My parents raised us with zero debt – so it has been built into my financial genetics. We just cranked it out this past 1.5 years – we have been fortunate to have a very big shovel to dig out of the hole (its a newer 5,500 ft executive home) while keeping our overall annual investing at a 6 figure clip.

    I am already annoyed at how many people I have heard (they don’t’ know it is paid off) say ‘why would anyone pay off their mortgage anymore with these rates?’ – well, for starters, my wife can retire. I can go part time (if I choose – fortunately, I LOVE what I do) whenever since we have managed ‘lifestyle’ creep and spend well below our income. The mortgage ‘deduction’ was irrelevant.

    Oh, and I sleep damn well at night in ‘my’ home! GREAT post PoF!!!

    • That’s awesome, Jon. Congrats!

      Not to brag or anything, but my wife “retired” at 24 when we exchanged vows. She has spent most of her retirement raising children and managing a household, and I think I might have gotten off easy gallivanting off to work every day.

      Glad to hear you listened to your DNA and conquered all debts early on.


  • I paid off the last of my student loans last year. The last loan was at ~3%. I was just sick of looking at it, so I paid it off. I don’t have any debt right now and the only debt I really ever see myself having in the future is a mortgage. I know the math would say to pay it over the 30 years and invest the difference, but not sure my brain/heart would allow that. I just am not a fan of owing money. Maybe I would pay the minimum until I had the stash I needed to be FI (not counting mortgage as expense) and then stop contributing to investments and pay off mortgage at that point. Only time will tell 🙂

    • I read your recent post on house shopping, FF. If you do pull the trigger, I would opt for a 15 year mortgage. Your rate will be lower, and a higher percentage of your payments will go towards principal.

      As a bonus, you won’t qualify for quite as much house, which will help keep you from over-reaching. Not that you need the help.


  • My wife and I have struggled over this quite a bit. We enjoy the deduction as we are in the early years of the loan and in the AMT zone. However, I’m sure it must be a huge psychological burden lifted to not have that huge debt hanging over your head.

    So for now we’ve decided to take a balanced approach and slowly start adding additional payments to pay down the mortgage faster while continuing to use some funds toward building up our other investments.

    • I hear you, PIMD. Knowing that you live in SoCal, knocking out the mortgage is a completely different ballgame than it is here in the Upper Midwest. A comparable house to ours would easily cost 4 to 5 times as much, and purchasing a home with cash would not have been a viable option.

      Keep doing what you’re doing, and I’m sure you’ll have your debts retired in due time.


  • I agree. I love being debt-free. I can’t remember when I last owed anything to anyone, but it was probably in my mid thirties. With my mortgage I paid about 10K of interest per year in hopes of getting 3K back. All kinds of experts tell me I was wrong and stupid to not have debt. I’m sure they are smart folks. I just know I don’t have payments, have a high-income with low expenses and could stop work at any time. I make dumb decisions but I can live with results like that.

    • It is a good feeling to be debt free, although I guess it should come with a tiny asterisk. At any given time, I usually owe at least a couple thousand dollars to a credit card company, but I always pay the full balance on time.

      I have no problem using credit cards, always have more than enough to pay them off in our emergency funds, and have earned many thousands of dollars in bonuses over the years with them.


  • We go back and forth on the issue. We’re debt averse (just the mortgage), but right now we aren’t working on paying it down (investing in real estate instead). The plan, at this point, is to have enough “extra” saved to pay it off (above and beyond what we need for a safe 3.5 – 4% withdrawal). Or we could downsize and pay cash for another house (with the equity) at that time. That said, I completely understand and agree with paying it off for peace of mind. I know I wouldn’t be comfortable being 100% retired with the mortgage hanging over my head.

    • Understandable, Amanda.

      Every dollar you have tied up in your primary home is a dollar that isn’t working for you elsewhere. Property values, over the long haul, don’t tend to fare much better than keeping up with inflation.

      Keep doing what works for you.


  • MDcajun

    Agree with the psychological benefits of being debt free. Investing isn’t about the end dollar. It’s about maximizing end return and happiness along the way. I ran the numbers and read the blogs like we all did. It probably made money to keep the mortgage. Here is our logic: the reason we needed money in the first place was happiness via financial freedom. Therefore, happiness was the goal. Being debt free gave me guaranteed immediate happiness. Arbitraging the difference between the mortgage interest rate (small after phase out of deduction) and market return gave me some happiness in the far future, but also would possibly give me unhappiness if the market declined for a bit. I didn’t need the extra money in the future because we are savers. So we chose the immediate guaranteed happiness, paid the mortgage off and haven’t looked back.

  • Congrats! We also chose the debt-free route for security and peace as well as because it gave us somewhere to save while we were figuring out our investing strategy. Finally, it didn’t hurt that several of my coworkers were being sued at the time and paying off debt is pretty darn good asset protection.

    Taking the hit on a house (also been there, done that) hurts, but it hurts less and less as time passes, and it feels so nice to not have those payments every month.

    • Good for you, CBL. The threat of lawsuits is one that never goes away, or at least not until about 7 years after you retire from medicine. This nation could use some serious tort reform, but it’s tough to get when so many lawmakers are also lawyers.


  • drg

    What is your opinion on the following scenario.
    Keeping the 750K mortgage (2.75%) and partial deduction.
    Putting the 750 K into triple tax free Munis, paying 3%, effective yield 5+% ( 45% NYC tax bracket).

    • Great question, drg! (dorsal root ganglion?)

      In that situation, I would not hesitate to leverage the mortgage for double the return in a very low risk investment. Most of the time, math will favor the mortgage holder, and it certainly does in the scenario described.


  • I personally want to pay one of my mortgages entirely, but I am quite tolerant to debt (actually thinking about creating more of it :P). I understand that you wanted to pay for your mortgage entirely, for a physiological reason, though. It does make a difference. In my own case though, I want to escalate my Real Estate business, so I have no option but keep on getting deeper into debt. 😉

    • If you’re investing in Real Estate to make money, leverage is a key part of success. A primary home, on the other hand, should not be looked at as an investment, so I think of that debt differently.


  • Jack Catchem

    Congratulations on the debt free at 40! I’m working hard at the same goal, but am excluding the mortgage (that will have to wait until I’m 50). Tragically California real estate prices are crushing and it’s going to take some dedicated grinding to wear down.

    On the upside we have access to a geo arbitrage option for retirement. It’s good to have options, which is what I like most about paying it off.

    • Well Jack, the good news is you’ll be able to afford 4x the house or a similar house for 1/4 the price when you do take advantage of an opportunity to move somewhere more affordable in retirement.


  • HarjotSingh

    I have an honest question – why buy a house at all?
    I am not a real estate expert and I haven’t looked everywhere.
    But when you think of what “Your Money ratios” and William Bernstein both say- if the rent is less than 150 times the price, it’s wiser to rent.
    Where ever I have looked, rents are less than that, sometimes much less than that e.g. in high real estate price areas. For example in San Francisco bay area and Southern California, the house that would sell for 1.2 -1.4 M, can be rented for 3-4 K a month. So according to the money ratio- the house should not be more than worth 450-600 k. Rental market is much less emotional than home owners market.

    • You bring up an excellent point. If you can rent a comparable place for a good price, it probably doesn’t make much sense to buy. The Happy Philosopher talked about this and ran some similar numbers in a guest post here on renting versus buying as a resident.


  • My plan is to have my mortgage paid off by the time my son hits high school so we can cash flow college

    • Eliminating the mortgage payment gives you the ability to put a lot of money towards something else. Your son’s education is a good place to put it, particularly if he chooses to be a Golden Gopher (or attend any public school in-state or with reciprocity).


  • Millennial doc

    This is a question I have been pondering a lot recently. My wife and I are both physicians 2 years into practice in our early 30s. Incomes going up steadily but should plateau at around 700 to 800 per year soon, depending on bonus. Have been maxing out all retirement accounts (close to 100k into 401ks, Roths, and HSA each year) and just knocked out student loans. Remaining home mortgage is 360 of 380k at 4.5 percent.

    Not sure yet if we are interested in early retirement, but would like to have this ability by our early forties. We do plan on “cutting back” in just a few years though so as to avoid burnout, and just see where that schedule takes us.

    On the one hand, I would love to be out of debt ASAP because I figure we could then live off of 50 to 80 k per year depending on lifestyle preferences (our part time would still likely be much more than this). However, on the other hand, I am cautious about going after the house aggressively now and losing the interest deduction in our most heavily taxed years.

    • Your expenses are awfully similar to mine, and your combined income is nearly double (we’re a single income household). I wouldn’t be too concerned with the mortgage interest deduction. You’re spending a dollar on interest to save 50 cents.

      Instead, think of your mortgage interest as being lower than it actually is. If it’s 3.5% to 4%, consider it closer to 2%, then decide if you would rather keep it or get that guaranteed return as you pay it down.

      It doesn’t have to either / or. You can pay it down aggressively and plan to be debt free by 40, rather than pay it all off in the next couple years.


  • MBC

    I did not see any discussion concerning how possible tax code changes might effect the payoff equation. Wouldn’t it be advisable to wait and see before making a final decision?

    • I wouldn’t wait for the current administration to make reforms. I didn’t see any proposal discussing eliminating the mortgage interest deduction, so I doubt that will change, even if we do have significant tax overhaul.


  • GXA

    Thank you for your thoughtful post and congratulations!!

    We went the other direction. Although now financially independent, I have more debt now than ever before.

    Our primary mortgage on a reasonable home is at 2.875% for another 13 years. I am in no rush to pay that off as long as I am working and do not have a cash flow issue.
    I also have farm land that I have been purchasing just outside the city in which we live. All of this is mortgaged. The first piece of land we purchased 4 years ago is now under contract to sell to a developer at a hefty profit.
    I am now learning quickly about 1031 exchanges.

    Debt is a powerful tool! As I wind down my clinical work and regular paychecks over the next several years, I do plan to pay off my debt.


    • You bring up an interesting point, GXA.

      Once you consider yourself financially independent, you can more easily stomach some debt, particularly if you’ve got the funds to pay it off and still be considered FI.

      When the time comes to buy a different house someday, it might make sense for us to take out a mortgage if the alternative is to take a lot of capital gains and cause a tax headache. I enjoy being debt free, but I may be in a position to choose not to be at some point.


  • Great article and awesome dialogue in the comments, PoF!

    Last September we made our last loan payment – eliminating $97k in student loan debt and car loans. In January, we sold our town home for a nice profit and rolled most of that into our single family home. I created a debt avalanche plan in Excel and it looks like we could pay off the house in 7-8 years.

    If I work hard, I think I can increase my income and even further accelerate paying down the home. I have a stretch goal to pay off the home in four years. In addition, in four years I don’t owe my company for graduate school reimbursement. Also, my daughter will be heading off to school around that time and I’d love to take a few months off (or just quit my job) and travel around the world with her and my wife.

  • Very good post PoF!

    Many seem to make a similar choice (to pay off a mortgage) despite the math.

    I can’t fault you there. We continue to maintain our mortgage despite being able to pay it off at any time. The math doesn’t lie.

  • NJDoc

    I wrestle with this decision almost daily…and if I bring it up again my wife may kill me…

    We have about 6 years left on the mortgage as we have paid a little bit here and there to speed up the pay off. I am only planning to work 7 more years, but that could change if I could modify the work environment, drop call, etc.. I may work into my 60’s.

    Home values in my area have dropped steadily for several years, and continue to languish, so I feel like paying off the mortgage is pouring money into a slowly sinking ship.
    That could change, but unlike my friends in CA our home has been a very poor investment. Granted it’s close to work, beautiful, etc… but mathematically it has been lousy.

    My financial guy ( yes I have one) absolutely argues against paying it off and I see the logic. On the other hand I think there would be a huge weight lifted from my shoulders if I could drop this in 3 years instead of 6. There I go again….back and forth.

    • Bummer about the real estate market in your area. Anyone who says home values “always go up” has no grasp of history or reality.

      The fact that you continually wrestle with the idea, combined with the fact that you can almost feel the weight being lifted off your shoulders tells me you should slay that beast of a mortgage.

      Good luck!

  • Toocold

    Well done! We paid off our mortgage when I turned 40 as well. Mathematically ( with perfect 20/20 hindsight), it was the wrong decision. The S&P has been on a tear so I would have made more money had I kept the funds in the stock market. So do I regret my decision? Absolutely not. Similar to your choice, it was a personal decision to get rid of the obligation of paying the mortgage, which substantially decreased our monthly living expenses. Plus, the incremental amount I could have gotten from the market is somewhat immaterial to the increase in our net worth.

    • Strong work, TooCold. The feeling of accomplishment and ability to keep more of every paycheck can easily trump the possibility that you might do better investing that money instead.


  • What i feel get’s looked past on the ‘pay off the mortgage’ discussion is the obligated monthly payment. regardless of interest rate, you have someone telling you what to do with your money every month. So, for me, i am actively paying down my mortgage to gain that control back and increase my monthly cash flow. I am maybe 2.5 years away from paying off the mortgage. That will be 7 years to pay off a 30 year mortgage. All that extra cash flow will then go towards building up an after tax brokerage account until i feel like I can retire.

    good post and great comments from others.

  • Thanks for sharing your story.

    Personally, it took me a great while to understand many of the psychological affects associated with paying off your debts. Fortunately my view is currently changing. Combining the freeing psychological affect of not owing someone else with the US market being expensive (historically speaking in terms of P/B and CAPE). We (my wife and I) have started to put money towards paying off our loans on our business and home mortgage.

    Some of the reasons that went through my head on why, is included here

    Thanks for sharing and I look forward to hearing about your investments growing and you becoming financially free, maybe even finding your new dream home down the road.


    • Congratulations, Stephen!

      While you might do better in the stock market, the returns on paying down loans are guaranteed. The intangible benefit of moving towards being debt free is hard to quantify, but it’s powerful.


  • Steve

    Interesting article and comments.
    The entire argument is far more complex than saving the interest and peace of mind. Though these are valid points.
    When you look at the entire financial picture, paying off a mortgage is actually, in my opinion the biggest mistake anyone can make especially in retirement. Having a mortgage is actually a safe, long term, non callable put on inflation. the calculations are complex with assumptions about the future. But to make it short, a surge in inflation (real or perceived expectations) are devastating enough for a working portfolio but potentially lethal for retirees. Suffice to look at the 70s. In that scenario the only viable option for regular folks is to have a fixed long term mortgage and have the value of the interest and payments decimated by inflation. This decimation is of course the exact mirror image of the retirees’ devastated investments.
    Most people never assume inflation will come back, but surely when a bankrupt country faces reality the currency takes the biggest hit.
    And I would argue that real inflation calculations (shadowstats or chapwood) show it to be far higher than what financial advisors use.
    My net worth is very high and I can easily pay off my mortgages. That is the LAST thing I would ever do. It is the best skewed strategy I know. I carry a few millions of low interest mortgages and inflation slowly destroys their value for my (tax free) benefit.
    A quick side point: I would certainly never spend money on a white elephant lake house in a community where only a few people can buy it from you. There is however an argument to be made about buying expensive RE in certain locales, at the right time, I consider it a leverage buyout and not being house poor.

    • Thank you for the intelligent insight, Steve. Anyone who locked in a mortgage at 2.75% in recent years will be looking awfully smart if rates return to 7.5% or 17.5% like we saw in the early 1980s. If you can afford to have a few million in mortgages, you’re in mighty good shape. I plan to retire early from medicine with a few million in net worth, and this site as my part time job.

      I freely admit that the waterfront home was my biggest money mistake. I was a young doc and felt it was my time to shine. We shone a little too bright and paid the price.


      • Steve

        Don’t worry about the house. I made mistakes far bigger than that. And it’s ok. Like learning medicine financial knowledge comes at a cost.
        And that house provided pleasure to you and the family.
        But even if rates go to 5%, the stock market will be halved and the bonds will have cratered to nothing. Nominal inflation will be 4-5% and true inflation 10%. Housing will be decimated. And these things are not isolated but interrelated.
        What this means is that let’s say a doc with a paid off house and a 2-3 m portfolio will find his net worth divided by 2 or 3 and her cost of living increasing at 10%/year. Imagine her sleepless nights at 75 years of age with no income.
        At 10% interest rates, well …dog food. kidding.
        That’s why I consider those montecarlo 3-4% withdrawal schemes completely useless because over 30 years they don’t work. Simple as that.
        They do provide a living for “financial advisers” however.
        I use RE because tenants pay most of my costs.
        Great blog

  • Peter

    I am in your camp with regards to being debt free. I am currently paying down my mortgage aggressively using about 80% of savings to pay down mortgage & 20% into a taxable investment account. We’ve paid down a 900K mortgage (we live in LA) to less than 300K and feels great. However, one issue that hasn’t been discussed much is risk of malpractice. Both my wife and I are physicians and understand the risk of malpractice exceeding the malpractice coverage is very low. We have umbrella insurance, but this doesn’t cover malpractice risk. There are even schemes out there that make you appear to have very low equity to deter against personal lawsuits (home in a trust, using LLC to create a mortgage holding company, etc.). I know on paper this is a very low risk event, but emotionally gives me pause about paying off my mortgage completely. What are your thoughts on this topic?

    • Thanks for the comment,Peter, and congratulations on decimating that mortgage!

      I’m no expert on asset protection, but there are strategies with irrevocable trusts to better protect your assets from lawsuits. The odds of losing a lawsuit for a sum greater than your malpractice limits are quite low, but of course not zero. Whether it’s worth the cost and hassle of better legal protection of your assets is something you’ll have to decide. Every state is different when it comes to what is protected, so if you want to take the next step, be sure to do so with a lawyer in your own state.

      I found this recent podcast at Doctor Money Matters interesting, and the guest has a website with dozens of posts on the subject.


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  • Love your thought process. It’s not always about the math. It wasn’t for us. We bought our house and paid it off in 7 years. We’re not doctors. In fact we’re a single income family of 6. So we made some hard sacrifices to make it happen, but we just didn’t feel right knowing that the mortgage company truly owned our home – and therefore had a stake in our future. Glad to be mortgage free!

    • Awesome, LYW. Congrats!

      I never felt comfortable saying we owned our home, much in the same way that it didn’t sound right to say “we’re building” or “we built” our home, when the truth was we paid other people to buid it. But both expressions are common — “we own” and “we built” when both are far from the truth.


  • Fired and Free

    I paid mine off against the recommendation of my financial advisor, whom I have since fired (in the traditional sense; I’m not saying I gave him enough money so he could be financially independent and retire early, although now that I think about it, maybe).

    Here is my logic: I had enough in bonds in a taxable portfolio to pay it off. Now the yield to maturity on those bonds looked pretty good, higher than the mortgage rate. But the yield to worst is not featured so prominently in my online account and not something my advisor ever discussed with me (he only talked about current yield). In fact that information is nowhere to be found, but it turned out to be quite a bit less than the mortgage. Looking at the prevailing rates, I didn’t see the sense of borrowing dear and lending out cheap. I can see arguments for it but it didn’t make sense in my situation, even accounting for capital gains on the bonds. And since I had no plan or desire to run a levered equity portfolio I questioned the wisdom of holding bonds and a mortgage, so I blew out the bonds and paid off the mortgage.

    Now in my portfolio I am close to 100% equities (some rental real estate and a few residual bonds that will be called soon), but it is a sleep-well-at-night portofolio since I have a paid off house. I have no reason to fear volatility in the markets. I could have done better of course but, to paraphrase Buffett, why risk what I have and need for what what I don’t need?

    No doubt the numbers favor an all-equity portfolio and a mortgage, and I admire anyone pursuing that like I admire any acrobat or trapeze artists, but I would be too afraid of whether or not I could land on my feet to try it myself. And I just enjoy the freedom and flexibility, the optionality that comes with not having that huge monthly nut.

    But I agree it is a personal decision and probably better decided by temperament than reason and numbers.

  • Dean

    My 2018 financial theme…”The Year of the Mortgage”

    I recently made a big stride towards paying off our house.

    We originally had a 30yr Physician mortgage on $300,000 (right out of residency, adjustable rate, ~4.25% ) but refinanced in 2014 to a 15yr 3.25% mortgage. Have made extra payments all along.

    Over the past 4-5 years I’ve been investing with an asset allocation of US 55%- Int. 25%- Bonds 10%- REIT 10%. All of my bonds were held as Municipal in my taxable account.

    Recently I noticed that my Munis were down ~$2500 . The overall return for the past few years has been less than my mortgage rate.

    I hit the sell button in Vanguard and transferred the $126,000 into my checking account. This morning that money went to Wells Fargo.

    New mortgage balance $49,700

    I got the double benefit of a tax loss harvest and a 75% reduction of my mortgage balance.

    Can’t wait to be debt free!

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  • Curious Investor

    I was curious, once you have your mortgage paid off, is there anything special you need to do with the title to the property? Paying off the mortgage is something we would like to achieve soon, and I got to thinking, “what happens after we pay it off”? Nice problem to have, but just wanted to know what steps you took and how you handled any paperwork for the transition.

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