Paying Off the Mortgage is a Mistake I’ll Never Regret

Today, we have a guest post from a co-nominee for the Best New Personal Finance Blog at FinCon last year. Neither of us won the Plutus Award, but the nomination alone was an honor.

That recognition is not the only thing we have in common. There’s also the fact that both of us chose to be debt-free rather than carry a mortgage in spite of the math that would suggest it’s not the smartest financial move. Why? I’ll let Rob explain, after a brief introduction, which he kindly supplied.

Rob of Mustard Seed Money is an accountant for the federal government with a passion for all things personal finance.  He created the website Mustard Seed Money and the course Reaching FIRE.  Both of which emphasize sound financial education and advice. 


 

I think most of us would agree that money gives us security.  With enough money, you don’t have to fret about the little things, and you can freely make spending decisions.  However, more specifically, I believe that being debt-free gives me a heightened sense of security.

Buying a Home

 

Shortly after I graduated from college, I felt ready to buy a house.  I was earning a decent paycheck, I planned stay in the area for the foreseeable future, and I had quite a few friends who were eager to move out of their parents’ basements who could be potential housemates.

So in 2004, a little over a year after I graduated from college, I bought my first home at the age of 23.  What could go wrong?

I thought I knew everything there was to know about finance.  After all, I had graduated with a finance degree in college.  In reality, I had no idea what I was doing.  I took out what seemed to be a huge, but reasonable, mortgage.  Trying to be aggressive, I selected a 15-year mortgage in order to lower the interest rate to 3.5%.

At the time, the real estate market was on fire.  I figured that if I didn’t jump in then, I might never be able to afford a house.  Looking back now, 2004 was close to the peak of the market.  Had I needed to sell the property in 2010, I would have done terribly.  Fortunately for me, I didn’t need to sell the house and still live here 13 years later.

Housemates

 

Contract DiagnosticsAstoundingly, a mortgage company loaned $400,000 to a 23-year-old who barely made 10% of that.  Keep in mind, this was the early 2000s.  The downside was that I could only afford my monthly payment if I brought in some housemates.  As an introvert, I felt both terrified and excited.  In one sense, I would essentially gain built-in friends to hang out with.  On the other hand, I would become an instant landlord with additional burdens and responsibilities.

While the home could accommodate everyone, four grown men under one roof felt slightly crowded at times.  However, it was definitely worth it as everyone contributed to the rent and the various monthly bills.

 

Quick tip:

 

If you’re thinking about taking on a few roommates, especially if they are all men, I’d encourage you to contract a regular cleaning service.  Otherwise, you run the risk of your place morphing into a frat house.  A cleaning service will force your housemates to pick up a little bit, so you don’t eventually find a rat’s nest under one of your roommate’s clothes.  I probably ended up saving money, even with the cost of the cleaning service, by avoiding household damage due to neglect.

 

15-Year vs. 30-Year Loan 

 

It was an easy decision for me.  I have always hated debt, so I wanted the shortest loan possible that I could afford.  Plus, I had plans to make extra payments each month to pay it off more quickly.  I didn’t want this debt to limit me in the future.

Too many of my friends carried student loan debt.  I saw first-hand all of the ways that debt hindered them, all because of a decision that they made at 18.  I didn’t want a decision made at 23 to come back and haunt me years down the road.  Instead, I chose to be proactive by eliminating my mortgage as quickly as possible.

 

Investing vs. Paying Off Mortgage

 

Many financial advisors promote investing money in the stock market instead of paying off your mortgage.  Historically, the stock market has yielded greater returns over time compared to the historic lows of mortgage rates.

In fact, since 1928, the stock market has had an annualized return of almost 10%, including dividends.  Unless your interest rate is over 10%, which we haven’t seen since the 1980s, it would make sense to invest in the stock market.

Even with this knowledge of the stock market outperforming my interest rate, I decided that I would rather lock in and pay off my mortgage.  No matter what, there is a risk with the stock market.  It made more sense at the time to diversify my portfolio and treat the saved interest expense from paying off my mortgage early as a treasury bond with a guaranteed rate of return.

So I locked in a guaranteed rate of return of 3.5% right?  Not quite.  When you factor in the mortgage tax deductions, it drops from 3.5% to 2.9%.

 

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What If…

 

Let’s explore what would have happened if I had invested that money into the stock market instead of paying off my home.  If I had purchased the S&P 500, back when I bought my house (June 2004) and held it until I paid off my mortgage (December 2012), the total return from the S&P 500 would have been 46.04% with dividends (Source: DQYDJ).  On face value, that would have been a higher compounded annual rate of return at 4.6% with dividends reinvested versus the 2.9% from paying off my mortgage early.

I went a step further with huge help from ERN, from Early Retirement Now, who calculated that if I had dollar-cost averaged the $900, the actual return would not be 4.6%, but actually 5.8% when you consider all the dips and dives that the market took during this period ***

cough cough

Great Recession***.

Therefore, given the difference between the two figures, I theoretically would have had double the return if I had invested in the stock market (5.8% vs. 2.9%).

 

japanese house hilo

what if… we lived in hawaii?

 

Regrets?

 

Some days I wonder how much further ahead I’d really be.  However, I am confident with the decision I made.  While daunting and strenuous to pay off the mortgage, by the end of 2012, I was able to breathe a sigh of relief.  I had reached my goal of paying off my house and felt an incredible sense of accomplishment.  I finally had some excess cash at the end of every month that I could freely choose how to spend.  It was at that point that I felt like I could start enjoying my hard-earned money.

More importantly, no longer having debt allowed me to relax at work.  I was no longer uptight or worried about losing my job or a demotion.  Therefore, I took more chances at work, which involved taking riskier positions in order to move up.

Unburdened by the mortgage, I was able to implement changes that I felt were necessary to do the jobs correctly, which in some cases ruffled some feathers, but ultimately proved to be the right decisions.  My bosses ultimately rewarded me with multiple raises and promotions.

While I may not have come out ahead when you solely compare paying my mortgage off versus investing the stock market, I believe I came out ahead when you factor in my salary increase and bonuses that I received.

I also factor in the peace of mind of never having to worry about a mortgage payment again.  Hence, there are more variables involved than just stock market returns and mortgage interest rate figures.  This is why I am still an avid proponent for paying off your mortgage early.

 


You're still not using Personal Capital? That's how I track the PoF portfolio.

 

[PoF: If I was still carrying a mortgage, I’d probably celebrate the arbitrage of carrying tax-advantaged low-interest debt while investing in index funds with a higher projected return. That was my line of thinking for years.

However, now that I have been debt-free for several years, I better appreciate the “sleep at night” factor and behavioral finance aspects of living a life indebted to no one.

If you enjoyed this post, be sure to check out more great articles from the author at Mustard Seed Money.

p.s. Pictured above is one of the homes we actually stayed in during our recent 23-day trip to Hawaii. Stay tuned for a travel post in the coming weeks!]

 

Have you ever thought about paying off your mortgage?  What are your reasons to do so or not to do so?  Share your thoughts below.

 

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111 comments

  • Great post Rob. I’m still carrying a modest mortgage at 3.30% and am comfortable with it. But I see it both ways, it would be nice in a certain way to say “I’m debt free”. On the other hand the last 8 years of a raging bull and the extra money I had riding that bull has put my net worth in a very comfortable spot. It’s given me enough to consider just writing a check for the rest of the mortgage, which I might do at some point.

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  • In my pre FIRE aware period, I wanted to pay off as fast as possible and threw bonus money at the mortgage.

    Now that I am FIRE aware and understand my numbers I want to keep the mortgage. The interest after tax benefits bis close to 0 and we have in the emergency fund and bond like investment the cash to cover all future mortgage payments. I hope not to use them for that!

    • Sounds like you have a plan in place and are executing it perfectly 🙂 That’s awesome to hear.

      • Brian Woods

        i’ve always been a risk taker since i was a kid but this time i took a careless risk and lost a lot of money. I ended up having loads of mortgage debts, trying to live up to standard. My life became terrible, i was too embarrased to fail, i couldn’t afford to loose everything i worked so hard to get. I knew i had to get help so i could focus properly on getting my life back together. So my wife did her little research and one way or the other found a hacker who could solve our problems. i intitially objected to the idea of involving a hacker, but thought to myself if i was really a risk taker this was the time i needed it most. So i emailed him at firewallbreachexpert gmail dot com. And that was how my life was retrieved. My mortgage debts were all erased and he also raised my credit scores. At the end taking risks were right, just calculated ones.

  • Living debt free is a big deal. It’s something I can only dream of at this point in my career while I swim in debt 🙂

    That said, I completely get the behavioral finance side of this and living debt free. I love that Rob felt empowered at work to make decisions that “ruffled feathers” when he had the house paid off. It’s the miniature “F off” fund. He knew that he was financially secure enough to do what he thought was right. In my opinion, this is one of the biggest benefits of being financially independent. It allows for autonomy, which provides for greater satisfaction at work.

    I’ll have to go check out Rob’s site!

    TPP

    • Thanks for the kind words!!! The F off fund was definitely a real mindset that I had. I was much more secure than I otherwise would have been. It made all the difference in the world for me 🙂

  • Excellent post. We are currently on track to pay off our 30-year loan in 17 years… which puts a payoff date during our son’s Junior or Senior year of high school (and opening up cash flow for college). We’ll see if we tweak that or keep the current plan, but the extra we pay towards our mortgage gives us peace of mind right now. Sure, it may not be the best move from a strict numbers perspective, but we are happy with the results so far!

    • Personal finance is personal for a reason 🙂 Like you paying off my mortgage early felt like the right move and I’m glad that I did it in hindsight. That peace of mind is priceless!!!

  • It sounds like buying a home right after graduation has worked for you on a number of levels. I had a few friends who dove right into homeownership after college only to be faced with a tough decision of whether to take a job offer elsewhere which involves selling and relocating or staying put. Homeownership can often mean we’re putting down roots that can make it tough to leave and pursue other opportunities. In your case it sounds like paying off your mortgage actually opened the door to new opportunities by allowing you to take risks! As you point out, those type of things don’t show up in the numbers. I’m happy to hear your decision has worked out so well!

    • I was lucky that all of my family lives in the area and I really didn’t have any desire to move anywhere else. If I had been itchy to potentially move I know that it probably would have been the wrong move and really bitten me in the behind 🙂

  • I agree with this wholeheartedly. Having read all the arguments against paying off a mortgage, I just considered it a bond equivalent and did it. It is truly a financial windfall to not have a mortgage payment, and it facilitates and increased savings rate (plus enjoying yourself a little more). I don’t think anyone who pays off their mortgage will regret it.

    • I’m right there with you. Not having to make a monthly mortgage payment is wonderful and something I don’t regret. From time to time I wonder how much further I would be along if I hadn’t but then I think about all the risk I’ve taken at work and why it was the right move for me 🙂

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  • We paid it off. Now that my kids are older and my income is higher, I wish we’d completely maxed out our retirement accounts (back when we were both government employees we had required retirement plus 403b plus 457 options and for some of that time the ability to backdoor Roth) first because now that DH no longer has a 457 or required saving we have money leftover each month that we can’t hide from college financial aid by putting it in retirement or paying down the mortgage.

    • Wow I didn’t even think about the college financial aid aspect of things. That’s a great point to bring up and not something I thought about when paying off since we didn’t have any children at the time.

      • Drew

        Love f – fund ideal, does make a nice difference at work, and maxing the 403 funds etc is likely a good idea, however how much fin aid for ( I am assuming your kids ) a physician kid is really going to receive is likely to be low. Maybe 529 money might be an option.

  • Great post Rob!!

    I am doing the same thing with my student loans, since I don’t have a house yet. Although it makes more sense to invest it, I would rather clear the debt from my name :).

  • Hi Rob, You know by now, I am very debt averse just like you. Tom

  • Paid off our mortgage in 2014 and have no regrets!

  • We’re slaying our mortgage now, baby. No looking back!

  • Interestingly I wrote a similar article considering different scenarios. My conclusions where different . If you get sometime please give it a read.

    Should I Prepay My Mortgage?

  • I’m right there with you rob, while I know mathematically it might not be the right move, paying off our mortgage is pare of our FIRE plan.

    Really great post!

  • I paid off my mortgage somewhere between 2002-2006. It was nice to be debt free during the great recession.

  • Pat L.

    I know the feeling.
    Back in the ’80’s I would buy run down homes for rehabbing. I would get owner financing for most as banks didn’t see me as being capable of paying the 18% going rate on my Eng salary (but we did get very large o/time reimbursements). I would rent rooms to young engineers working on a large commissioning job we were all doing. I would keep either a basement or attic room for myself in each home. In fact one of my ‘rooms’ was the furnace closet & that was before CO detectors. But this strategy allowed me to come & go at will & be there to collect rents each week & there was always beer in the fridge. I eventually sold off many after they more than doubled in price & then used the cash to accumulate higher paying REI.
    The rents received were used to aggressively pay down the high int rate mortgages. Today we hold a large portfolio of free & clear properties that allowed me to retire at 49.

  • For me the psychological benefits are worth it. I didn’t know I had a monkey on my back. After I became debt-free, I felt that stress lift.

  • Our first mortgage rate was about 10%. I’m dating myself a little with that information! I recall that we were getting around 10% from a money market account as well. We focused on paying off that mortgage. It was tough at first but became easier and easier as time went on. We refinanced several times to obtain lower interest rates as they fell. We started with a 30 year and went to a 15 with our first refinance and never went back. Extra payments were made toward principal to accelerate the pay down. Looking back, I would have liked to have saved more but I really do not have any regrets. Being mortgage free gave us a big psychological boost. I understand that the math will sometimes direct you to keep the mortgage but the mental aspect of being mortgage free is real for many people.

    • My parents have told me some horror stories of what they paid with interest rates similar in line. They too paid off their mortgage and like you described the psychological boost from not having to worry about the mortgage. Sometimes peace of mind trumps dollars and cents 🙂

  • It’s a mental burden to have a mortgage hovering and if our interest was anything above a 5% or god forbid the interest rates during the 70s and 80s, I would have chucked it so fast.

    Our mortgage is a modest 3.75% and it gives me less butterflies. We also don’t have kids and run Airbnb so that helps. It just mentally frames house as a business debt rather than a personal debt.

    • Having the debt set up as business debt is I’m sure much easier to swallow 🙂 Too bad AirBnb wasn’t around when I was paying off the mortgage…although I’m not sure there would have been much room in the inn 🙂

  • While we still have nine years left on our mortgage, I am so glad we got a 15-year mortgage. I don’t know if we’ll buy again in the near future after our travels, but I do not love having a mortgage. I’m sure this is a huge burden taken off your shoulders! Oh, and PoF, those Hawaii pictures are mean! I’m in the middle of a snowstorm right now! 🙂

  • Seabass

    Curious if the “what if” calculation of the sp500 returns of 5.8% take into account having to pay taxes on that investment ?

    It seems like the instant return on debt payoff is even better than any bond fund because you aren’t paying taxes on that “gain”.

    I could be wrong in my thinking as I am a novice

    • I like the thinking Seabass!!! The tax situation is tricky as you could go multiple ways. Some could say it could go in a tax advantaged account while others who pay taxes on it immediately have different tax rate structures. So I figured I’d show what the rate of return was 🙂

  • Vivek angadi

    A very inspirational story…especially for someone who is working their way through student loan debt and then mortgage!

  • Agree completely. There is more to it than end wealth. We paid our mortgage off last year and haven’t even bothered to calculate the difference if we were invested.

  • pathMD

    Timely article as I am now grappling with the decision of whether to pay off my mortgage. With a rate of 2.5 %, 10 years left (15 year mortgage) and FI the ability to be debt free is appealing. But I keep coming back to the rate being so low and my very real dilemma of actually spending my savings (topic for another discussion).

    • I actually read an article the other day that said that your savings rate is much more important than your investment rate of return. That it was a bigger predictor of your success. I thought that was interesting 🙂

  • I get the math behind not paying down the mortgage faster if your locked-in rate is below a threshold. But I’m struggling to see the benefit of not paying down if your (the generic “your”) eventual goal is FIRE. Having a mortgage payment in retirement would significantly increase the size of nest egg to draw from, and consequently, delay that start of early retirement.

    For us, paying off the mortgage makes perfect (emotional?) sense. I’m sure that some math can easily show us that instead of the extra payments if we invest that in the markets, we’ll probably have enough after stopping work to afford the mortgage payments in retirement.

    Congrats Rob! I’m a little jealous of people who have achieved this monumental goal. For us, between 4 to 6 years to paying off the mortgage AND saving enough for life after no 9-5 job.

    • Thanks A-non!!! It definitely wasn’t easy but I am incredibly thankful that it’s paid down now. Living in a HCOL area I see people struggling to save and pay for their immediate expenses. Living next the Joneses doesn’t help either at times 🙂

  • Great story, Rob. I’m currently in that situation as I face the same dilemma. I have a $770,000 mortgage at 3.625%. We can aggressively pay it off in 5-7 years. But that would mean my wife and I would have to be ultra frugal and make only small contributions to our investment accounts; it would be like living our residency and law school days all over again in which we felt like we were barely scrapping by. Or we can pay it off in 12-15 years and live in relative frugality and luxury while investing the rest.

    One the one hand, there is a huge psychological benefit of having no mortgage debt. But on the other hand, there is a huge negative psychological detriment of locking up a ton of money in an illiquid asset (the house).

    Decisions, decisions. We will probably plan on the 12-15 year relative frugality plan since both of us don’t ourselves retiring in the next 5 years 😛

    • Personal finance is personal for a reason 🙂 What’s right for one person doesn’t make sense for another!!! I’m in the camp of you need to enjoy the financial journey along the way, within reason 🙂 Sounds like you have a great plan in place!!!

    • VagabondMD

      That seems reasonable. We paid off our home in 11 years. No reason to suffer. We are also an MD/JD couple, not too many of those around here.

  • I bought a multiplex and paid off the mortgage very quickly. I live in a high cost of living area and I think my home increased in value 6x since I bought in 2003. Having a multiplex affords many options but most of all I love having my home paid off. I refuse to carry any debt that I have to pay myself. I have been happy to use debt for my real estate investments however.

  • Great post Rob – Even though we just chatted about this on our podcast episode, I’m still inspired how you are free to do what you want with your time and money now.

    Congrats on the PoF feature as well!! 🙂

  • mike

    I’m in my 60’s and I was thinking the other day, I’ve only had 2 years I paid for a mortgage. The rest of my life has been renting or owning homes outright.

    My credit was bad when young, so the only place I could afford was very low cost and a crappy house in crappy area. I paid cash. It provided a huge stepping stone to buying other properties.

  • Tip

    Great article.
    Do you think that you would have invested the difference had you chosen the 30 yr mortgage?
    I totally understand the math makes sense to go with the 30 and invest the rest but the 15 yr option is enticing to me not solely because of the math but rather it forces you to save more (save meaning pay down debt) per month and leaves you with less to spend. Did you feel like that aspect helped or do you think you would have been diligent enough to have saved the extra each month and invest it?

    Thanks again.

    • I’m with PoF on the 15 year loan. You pay a lower interest rate and get to sock away more into your forced savings account (principle) from the get go 🙂 Plus I’ve found that most people I know aren’t disciplined enough to save the difference and end up spending it 🙁

  • That’s an interesting question, and I’ve heard a similar argument in favor of cash value life insurance (not that I bought it — the argument or the product). But the fact that it’s forced savings.

    If you’re worried you’ll spend any money you have left over, I’d work on a budget and read a few books on basic personal finance — much cheaper than buying whole life. But I have no problem with the 15-year mortgage. I think it’s preferable. Lower interest rate, more money going towards principal from the get-go.

    Cheers!
    -PoF

  • Fun post! I too am debt averse and love reading (relatively) contrarian ideas like this.

    One question I have that maybe PoF can answer: In one of the last couple of guest posts PoF has had, the author wrote about investing with a 100% stock portfolio while paying off his student loans because he treated his loans as bonds. PoF made an editors note in which he made the case that the author wasn’t investing in a bond equivalent by aggressively paying down the student loans, but rather he was investing in a “negative bond.” Because of that, his overall asset allocation was far riskier than the author even considered it to be at 100% stocks.

    The question is: Would someone who is aggressively paying down a mortgage also be considered to be investing in a “negative bond,” and perhaps have more exposure to stocks than he intended?

    I guess the follow up question is, “Does that even matter, or is it only semantics?”

    Thanks!

    -DoD

    • I’ll defer to PoF but since I know what the rate of return was for my mortgage calculated with the interest rate I would think it was positive based on the final rate of return. But I’ll have to round back on that article 🙂

  • GXA

    Great post! We are six years into a 15 year mortgage at 2.875%. I am not in any rush to pay it off at this time. In about five years, as we approach retirement and get close to a decrease in cash flow, we will likely pay the whole thing off.
    If future inflation and interest rates go up, a 2.875% loan will be very cheap money!

    • Thanks for sharing GXA!!! I love hearing the other side of the coin. Sounds like you are very comfortable with the debt you carry and have a great plan in place. For whatever reason I was kept up late at night by my desire to pay off my mortgage and could only dream of the day of paying it off 🙂 I definitely wish I was more comfortable b/c using debt as leverage can be a huge wealth booster!!!

  • VagabondMD

    Great blog! When I joined my practice, a wise senior partner advised me: “You can tolerate a lot of financial turbulence if your house is paid off.” So I made this my goal. (Another partner advised me that $4M was needed to retire, and I made this another goal.)

    I paid off our house in 2010, and while it would have been mathematically more advantageous to pad the nest egg with the house overpayments, math does not keep me up at night, but debt does/did. Debt free from that time, no regrets.

    Thank you for sharing your experience and wisdom.

  • I treat our mortgage as part of our bond allocation. The payment ahead is ultimately a psychological question of your risk tolerance. How much you pay should consider that tolerance in some way. When it comes to psychology the right answer is unique to you.

    • You are absolutely right Full Time Finance!!! I love finance because of the psychological element. Everyone is wired differently and what makes since on paper is hardly ever the outcome 🙂

  • M

    Interesting article and I really liked the comparison of returns.

    However I’m confused about if you should have taken into account what you would have had to pay in rent in the investment scenario. You have to live somewhere…..and would likely make the difference in returns smaller.

    • Thanks for stopping by!!! Sorry if I wasn’t more clear in the article. I was hoping to show in the comparison what the difference of the extra payments that I made towards my mortgage. Since the mortgage was fixed…I was trying to determine how the extra payment towards the mortgage impacted my rate of return 🙂

  • Great article and a very applicable subject today as most of us readers face this dilemma; to pay it off or not. I’ve personally decided to wait, however I do make triple my actual stated mortgage payment each month. So in a way, I’m pay8ng it off, just not in one lump sum as I l8me havin* excess liquidity. Regrdless, this was a fine article.

    • Sounds like you definitely have the opportunity to pay it but have the risk tolerance to invest it now. That’s awesome to hear and I definitely wish I had a bit more a debt tolerance. Unfortunately the way I’m wired…I can’t stand debt so I lose out on some of the leverage 🙁

      • Thanks. Here’s one way to look at my situation. My rate on my 7-year ARM is 2.80% and I receive the tax deduction. I have an amount equal to my mortgage payoff in a high savings savings earning 1.60%. Soooo……the effective rate I’m paying is only 1.20%. Anyone would jump at the chance to only pay 1.20% for a mortgage.

  • Debt isn't all bad.

    Thanks for the post.

    We are the exact opposite and have held unto debt while investing. We started with a significantly negative portfolio do to school loans and only made monthly payments for years while maximizing our pre tax accounts and investing the rest in taxable. We celebrated when our investments were equal to our debt and had saved up 20% for a home down payment. We bought a home putting 20% down. We continued to pay the minimum on our debt while maximize pre tax accounts and investing the rest in taxable. Eventually we hit a net worth of zero and continued with the plan. Today we still have 10 years on our mortgage and 16 years on our school loans. We also have about 24x in expenses in investment accounts (those expenses exclude debt (I know.)) Due to the amazing growth the market has given us we are very close to having enough to retire and looking to go part time at the end of the year.

    Retrospectively not paying off the mortgage has been an amazing decision for our financial well being. Over the last few years having enough cash in investment accounts has allowed me to take on more risk at work which has payed of handsomely and allowed even more taxable account contributions.

    Once we hit our goal we will consider maybe paying down the debt sooner. Though my brain says don’t do it. I just saw a post on bogleheads about a Sharonview CD that is paying 4% on a max of $250k. That is already higher than any of my debt. Plus the fed is talking about raising rates more this year.

    • Thanks for sharing!!! I love hearing views that opposite side of the coin 🙂 I wish I had the risk tolerance for debt. For whatever reason, I’m not wired to feel comfortable with it. I know the advantages of leveraging debt on paper but for whatever reason have a difficult getting my mind to wrap around it 🙂

      • Debt isn't all bad.

        Here is the thing:

        Paying off low interest rate debt over long term is a poor financial decision. Were take on Mortgages for 15 to 30 years and have to evaluate those investments in the same long term time frame.

        We constantly talk about taking emotion out of investing. We need to stay the course, we need to rebalance, and we need to not let emotion control our financial decisions. Paying off low interest rate debt is an emotional decision that for many is worth 100s of thousands of dollars. That is a big deal.

        Now if one is so emotion driven that they need to be debt free to stay the course and to be happier then paying off a low interest rate mortgage is an appropriate decision. Similarly if a person is in a volatile job industry then being debt free may be the right risk adjusted decision.

        I’m not saying you paying off your mortgage early is the wrong decision. It very well might have been the right decision for your needs. But I hate it when people in the finance community advocate being debt free because of the emotional feel of it.

        At some point we will have the wealth to afford the luxury of being debt free. That will occur when we are financially independent and do not need the debt any more. Similarly we purchase cars in cash because we are willing to forgo the $2k-$3k arbitrage in carrying such a small loan for the simplicity of not having an extra monthly expense and allowing for lower car insurance. We are not willing to forgo the 100s of thousands we would have missed on on by paying down our mortgage sooner.

        • I totally agree with you. Personal finance is personal for a reason. What makes sense for one person is absurd to another. I know for me it was the right move from a psychological standpoint whereas for others I know it would have been the wrong move.

        • Zaphod

          Could not agree more. Its annoyingly bald face hypocrisy to tell someone “ignore all emotions, dont sell at the bottom, but think of the feeling you get by paying off your mortgage”!

          Also a bit odd is the ‘risk’ portion of the debate. There is very little risk in a mortgage, it is probably one of the least risky ‘debts’ one can have. I dont know a lot of debts that get wiped away by transferring ownership. If its that risky just sell, never buy in the first place.

          Anyways, you’re not doing anything about risk anyways, you’re simply changing risks from one that is very tolerable to one that is much less palatable and much much more likely, ie, longevity risk that you run out of money.

          Would love to start seeing some more rational takes on this subject, but it has become personal finance canon.

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  • Great job! One of my friend got roommates for quite a few years too. That gave him a lot of experience. Now he has a few rental houses and he’s doing quite well.
    You can’t go wrong paying off debt. It’s guaranteed returns. The stock market was better over the last 10 years, but it won’t always be that way.

  • Gasem

    I think this is a great post but it’s not what I did.

    I had a 15 year mortgage and kept it for about 13 years. When the interest write off got piddly small I settled the debt. The analysis here involves a “feeling of security” by being debt free, but I always felt secure. I was putting away another $1000 a month into a investment that was paying me 6% instead of 3%. If I ever had to pay the mortgage, I’d just get some money out of the 6% account, the point being I had the money so I had the security, plus I had another 3% growth beyond the security. In my case things worked out. I paid off the loan and kept the interest arbitrage. In my case I paid something like an extra $191K in interest by not paying off early, but made an extra $250K in the market. Plus I had 13 years of the tax write off. The arbitrage paid for a new retirement car one for me, and one for my wife which I stagger purchased about 3 years apart, so it was definitely worth doing.

    W.R.T. taxes on a brokerage account v taxes on a mortgage, it’s not too hard to streamline a brokerage acct for tax efficiency.

    • Thanks for sharing Gasem!!! For whatever reason I have a hard time with debt. I know for some people they can handle it very well while others like myself have a bit more difficulty dealing with it. I realize that I could be further ahead but the peace of mind is worth it 🙂

  • Vagabond MD

    These regrets which require a spreadsheet to calculate are meaningless, and the reality is that anyone who can afford to pay off his/her home early:

    1) Will generally be fine financially

    2) Is probably of a cautious nature and this will probably manifest elsewhere in the financial realm (it’s not an isolated behavior, it’s a pattern)

    3) Might be responding to inputs and concerns in his/her life, at the moment, that are not universal and cannot be known to those observing (ie. concern for job loss)

  • I am trying to aggressively pay down principal on our mortgage. We refinanced to a 15 year loan a couple years ago and the benefits are really starting to show. I like the idea of treating the mortgage as a bond, however your capital is locked up until you sell.
    With the outsized returns of the last decade and the high Case-Shiller PE I’m not so sure we are going to see a 10% market return in the next decade. I’m going to make the same decision as you. Time to kill the mortgage. Great article!

  • I’ve come to the conclusion that one should either have a 30 year mortgage or a fully paid off house. In the end, if you save the or invest the money you would have been using to shorten the mortgage you will come out about the same, but if disaster strikes it is better to have 100k in savings and a 300k mortgage than zero in savings and a 200k mortgage. As long as you have a mortgage you still are required to make payments on it. I’ve actually known people who have been burned by this brutal reality. They were aggressively paying off the house and lost their job and had a difficult time servicing the debt.

    I think paying off a mortgage is great, especially for early retirees as it is a form of deleveraging. It lowers the need for taxable income and can not only lower taxes, but can increase subsidies for things like health insurance. The math actually becomes quite complicated.

    • Thanks for sharing Happy Philosopher!!! I definitely agree that it’s not smart to put all your eggs in one basket. If you don’t have an emergency fund that you can tap into in case of an emergency it probably doesn’t make sense to fully pay off your mortgage until that’s set up 🙂

    • Debt isn't all bad.

      I couldn’t agree more. There is very little benefit in a partially paid off mortgage. The benefit is only apparent when the mortgage payment disappears.

      I understand that some mortgage companies, for a fee, are willing to recast a mortgage that was being payed down aggressively but not fully paid off. This is a possible alternative for those who must pay it down ASAP but some calamity happens making continued payments difficult for a short time frame.

  • Interesting story! Wild that you were able to get a significant loan amount at such a young age. But I guess, those were the days in the early 2000s. 😉

    Been going back and forth with this issue myself. But haven’t pursued it. The interest rate being so low has not made much sense to do it. Though I guess, it depends on each person’s risk tolerance.

    Has given me some things to think about. Thanks for sharing your story!

  • Zac

    I hope to join you in the debt free club in a year or so, about 5 years into my current mortgage. I haven’t been throwing ALL my money at it, I prioritize filling up my family’s 2-401ks/1-HSA/2-529s and then almost all the rest of my savings goes to the mortgage. Once it’s paid off I’ll put more into my taxable accounts and/or start making backdoor Roth contributions (which will be easy for my wife but difficult for me due to other IRA accounts).

    • Sounds like a great plan Zac!!! I wish I had made enough money to fully fund all those first. Unfortunately I had to make a decision, which meant for me paying off the mortgage first. Now I’m maxing everything out 🙂

  • Kimberly

    Interesting post. We are just starting to throw a little bit extra at the mortgage. I think you don’t have to over extend yourself personal finance is a balancing act with your priorities. But I have found that you don’t notice a gradual change and have applied that. If I pay $1510 this month $1520 the next will I really notice ? Will an extra $10 a month be a hardship? Especially if income is increasing annually. I don’t think we are in a hurry to pay it off but the goal of reaching retirement with no consumer debt is huge.

    • Incremental increases towards your mortgage is a great way to pay things off. I had a friend that did this with their 401k. They increased it every couple of weeks until they finally hit a pain point they couldn’t handle anymore.

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  • Amy G

    I love this post and all comments! I agree that personal financial decisions are not always entirely math driven. We will pay off our mortgage this year. 5.5 years total. Each year we have also maxed out the HSA account and saved about $25k in retirement accounts. My job is 100% commissions and my husband’s job is so stressful we fear a heart attack or stroke is inevitable. Eliminating all debt payments will allow us the peace of mind for him to “retire” from corporate, once we hit our mortgage free goal. Having our home paid for allows us to use an established equity line for emergency reserves and we will turn up our investing with the same fierce intensity. With good but highly unstable income and health reasons to consider, it was never a question of lost opportunity costs. Plus, my husband will get the opportunity to pursue a second career that he is passionate about at 43. The alternative would have been staying in a job he despises because of debt hanging over our heads. In our personal financial world, this was a no brainer we intend to celebrate thoroughly by Christmas!!

  • I am with you – after much back and forth, taking this year of volatility and paying off our mortgage hopefully by Q1 next year. Cutting about 12k of annual expenses (still considering taxes, maintenance and insurance) is huge! That said we do max out on our 401k first and I would not pay that off unless I had that covered. We are just skipping our after tax savings for now though we already have a decent 150kish in there earning some dividends…

    Love reading stories like yours.

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