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What was the biggest motivator for paying off your mortgage early?

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  • What was the biggest motivator for paying off your mortgage early?

    I’m interested in hearing from those that paid off their mortgage early. What motivated you? What do you see as the pros and cons?

    I’ve been watching a lot of Dave Ramsey and he’s obviously an advocate for paying off your mortgage. I never really got it - the numbers person in me didn’t understand how it was better to pay off a low interest loan when comparing the opportunity cost of historical market returns and inflation - but he said the safety cushion of having a 100% paid for home allows you to take on riskier investments that allows you to build wealth. I’m wondering if those that have paid off their home early found this to be true?

  • #2
    I'll caveat upfront that Dave Ramsey is not known for his mathematical acumen -- rather, he focuses on behavior & emotion & motivation. Which to his credit, works! You just have to recognize that it may not be the mathematically "best" option.
    ​​​​​​
    That said... I paid off my rental house (my first property) in 2018, after only 6 years of ownership. In fairness to Dave, I was listening to his podcast regularly on my 30+ min commute at the time, and it likely served to help motivate the choice. However, DW & I were also earning an absurdly high income ($250k+), living on maybe half of it, and saving/investing the rest. So our brokerage account had more than enough to cover the mortgage, and it bothered me that after PITI+mx+mgmt expenses, the rental was costing us maybe $200/mo. So I was happy to pay off the mortgage & turn the rent into pure profit.

    We purchased our current home (3rd property) in cash after selling our 2nd house (in a HCOLA, so we built up some good equity there), emptying our brokerage, and scraping nickels out of the couch.
    I'm honestly of a split mind about it. My analytical side assures me that the low-rate mortgage is obviously more optimal. That's a fact. But do I regret having absolutely zero debt in my life? Not in the slightest! It's truly very comforting to know that nobody's got their claws in you. And we're now able to invest what would otherwise be a mortgage payment, to rapidly build up the cash for purchasing more rental properties in the future (and invest more, and spend money as we like, and give generously, and build a very secure future for our family, and, and, and .....).

    I don't recall hearing him say that a paid-off home allows you to invest with a higher risk tolerance, but I think I agree. The rental home is a great example. Because I don't have to worry about it always producing income so that I can pay the mortgage, I face far less risk than other property owners. In turn, I can accept a higher degree of risk in other investments, such as my investment accounts. In fact, that actually happened. After the rental was paid off, I eventually decided to adjust my AA from roughly 80/20 to 90/10, and later worked REITs into the mix as well. The same dynamic applies to your personal residence, just less obvious.

    If you want to do it, I say go for it. But it's not a panacea of wealth building, and keeping a mortgage isn't immoral or stupid or anything like that. I personally love it.

    ETA: To clarify, both of the mortgages on those first two properties were 15-yr fixed. So the payment was higher than it could have been, but we were also able to build up our equity pretty quick. Ex: The first house had a $130k loan, down to roughly $80k by the time we paid it off.
    Last edited by kork13; 01-06-2022, 09:13 PM.
    "Praestantia per minutus" ... "Acta non verba"

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    • #3
      Thank you, Kork!! I recognize Dave’s methods aren’t known for their mathematical prowess but they work because we’re human and there’s a human/psychological side of personal finance. It was in a recent video that he mentioned the higher risk investments. It was the first time it made sense to me.

      We aren’t in a position to pay off our mortgage debt right now. We owe $1.1M combined, both on 30 year mortgages, but we could knock the debt out in 10 years with a little focus and without sacrifice to our current lifestyle. We could do it faster if our incomes rise (which is probable but I’m planning base case) or if we really focused.

      10 years is a still a long time but I do so much better if I have a goal to work towards so I like the tangibleness of this.

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      • #4
        Fortunately for us, there is no reason to pay off mortgage early. Its zero percent interest. We only owe approx $90k that will be paid off in 11 years (15 year mortgage.)

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        • #5
          My motivator for paying off my old house was a low balance and some inexperience.

          I have a mortgage again that is around 167k with 18 years left.

          I could pay it off today but I won’t. My investments made more in this past year than the cumulative interest on the mortgage over 20 years.

          no sense pulling that money out of the investments.

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          • #6
            It's mindset over money. For me, it was student loans more than mortgage. Had I paid my loans on the assigned schedule, I realized I could still be making payments when our daughter was in college. That was insane to contemplate. I set a goal to pay them off in 10 years. It ended up taking a bit over 12 because of a job change and brief period of unemployment, but I was thrilled when they were gone. Could I have made a lot more money investing? In hindsight, absolutely, but there was no way to know at the time that that would be the case. We still invested along the way and still did well in the market, but also got rid of the loans.

            We paid our house off early, but only by about 5 years. Still, I'm sure we saved thousands in interest. And now we've been completely debt-free since 2019 and able to pour 100K or more a year into our savings.
            Steve

            * Despite the high cost of living, it remains very popular.
            * Why should I pay for my daughter's education when she already knows everything?
            * There are no shortcuts to anywhere worth going.

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            • #7
              I felt it was an important step to becoming ready for retirement. Having the mortgage paid off reduces the amount of cash flow that would be necessary to run the household.

              But, (generalizing here) you are probably better off investing the money in the market until you have enough pay to completely pay off the mortgage because the rate of return is higher when you compare the historic returns vs the interest rate you are saving.

              On the other hand, I felt a psychological boost when I saw the balance go down on the mortgage. I was always scheming on how to make the balance go down even faster. On some levels it seemed like my equivilent to the lunar landing. It seemed impossible at first, but we kept at it until we suceeded.

              When we reached the point where we could pay the mortgage off within the next year, I signed up for a 12 month interest free credit card. I put all our monthly expenses (that didn't require paying a convenience fee) on the credit card. I used all our available monthly income to pay the mortgage (which was then paid off within a few months). After the mortgage was paid off, we paid off the balance on our interest free credit card. So, we turned it into a 0% loan the last few months.

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              • #8
                I paid off our mortgage because I hated it. Always felt like failure when I had to say we were debt free except for the mortgage. Purely emotional.

                Then we moved. We were able to sell the old house before we bought the new house, so we could have paid cash for the new house. Easy choice, right? Well, we decided to take out a mortgage on the new house and invest the money from the old house in our 60/40 portfolio. This was May of 2020. Purely mathematical. We got a 3.75% 30 year fixed rate mortgage for $500k.

                Fast forward to today and the math makes us look like geniuses. We made $140k on the money we invested. We refinanced to a 2.25% 30 year fixed rate mortgage. And inflation is raging.

                The compelling math is calculating the net present value (NPV) of the mortgage. I believe inflation will be 2.25% or higher for the next 30 years. That means the NPV of our $500k mortgage is $500k or less. The real interest rate on our mortgage is 0%. If inflation is higher than 2.25% (like it is now), we are making money on our mortgage. This doesn't take into consideration what I do with the cash I could have used to pay off the mortgage. It isn't that complicated. Some argue that you may make more money in the market vs. the guarantee of paying off a mortgage. Fine. But I don't need to make anything in the market. The fact is, the real rate on my mortgage is 0%.

                That's the math.

                I still hate our mortgage and think about how to pay it off all the time.

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                • #9
                  For me it was about mitigating risk.

                  100% of foreclosures have one thing in common.... mortgages.

                  With a paid off house, no matter what happens with my job or the economy, I have my largest expense resolved. I should hope that I will never have a minimum wage job, but if I did, I could make ends meet.

                  Another driving force was doing the math. With a 6.5% interest rate on 30 year fixed $100,000 mortgage, every extra dollar I put on the principle each month saved me about $1.50 off of the back end.

                  As kork13 eluded to about Dave, it may have made better sense on paper not to have paid the mortgage off. I didn't start the IRA until the mortgage was complete. Had I maxed it out each year instead, I suspect I would be ahead on paper right now verses what I did.

                  But then again, the two years after paying off the house, I paid cash to replace my siding at $17k. In the middle of the residing job, my insurance company sent me a letter saying they were dropping me as a customer because of my siding!! Had I had a mortgage, that alone could have lead to foreclosure. When I showed them the contract that the siding replacement was already underway, they IMMEDIATELY wanted rescind their letter. I'd already signed up with another insurance company and was saving $100's per year.
                  Last edited by myrdale; 01-07-2022, 09:46 AM.

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                  • #10
                    I just don't like debt hanging over my head or owing people money.

                    100% of foreclosures have one thing in common.... mortgages.
                    I like this statement

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                    • #11
                      I didn't pay off my mortgage and we easily could. But I realized we also made more in our portfolio than the interest I've paid this year and I'm paying 2% now for the next 7 years. I also don't believe this is our final home. I'll probably pay off any mortgage we have when we retire to simplify my life. Smart? No but similar to Like2Plan I think it makes sense when we're about to retire. Of course who know? If I came into a lot of wealth and it didn't matter? Then maybe I just pay off the house to never worry again. But seriously 2% loan is ridiculous cheap right now. Our house is costing us nothing.
                      LivingAlmostLarge Blog

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                      • #12
                        Wasn’t necessarily a focus for us, but we did pay our mortgage off early, roughly 3 years ago. I’ve never been a fan of debt - with car payments being the thing that really drove me crazy. Fast forward to the start of the pandemic, when we were really in the dark about what was going to happen, wondered if there was potential that I’d be furloughed, etc and it was nice feeling to be in a position where we didn’t owe anyone a dime, had an emergency fund, and healthy savings. There’s a certain peace of mind that comes from not having any debt.
                        Money is better than poverty, if only for financial reasons

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                        • #13
                          I believe the argument is that, once you have your house paid off, when the economic hurricane hits, you know your biggest asset is locked up, and the wolves will have to find something else to chew on.

                          Ramsey's argument has always been sound to me. Assuming you were debt free, if you wouldn't borrow X dollars at Y percent interest to invest in the market (counting on a return that would outpace your interest rate), it makes no logical sense to retain a mortgage worth X dollars (at Y percent interest) any longer than you need to.

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                          • #14
                            Originally posted by AJSimon View Post
                            I believe the argument is that, once you have your house paid off, when the economic hurricane hits, you know your biggest asset is locked up, and the wolves will have to find something else to chew on.

                            Ramsey's argument has always been sound to me. Assuming you were debt free, if you wouldn't borrow X dollars at Y percent interest to invest in the market (counting on a return that would outpace your interest rate), it makes no logical sense to retain a mortgage worth X dollars (at Y percent interest) any longer than you need to.
                            You don't have to outpace your interest rate. If your interest rate is 2.25% and inflation is 2.25%, the money is 0% real interest rate. Free money.

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                            • #15
                              Originally posted by corn18 View Post
                              You don't have to outpace your interest rate. If your interest rate is 2.25% and inflation is 2.25%, the money is 0% real interest rate. Free money.
                              This doesn't make sense to me.
                              Are you assuming that your house is appreciating at same rate of inflation, so what you give away to the bank in interest you get back in home value increase?

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