The debate over paying off your mortgage early vs. keeping the mortgage long term has been an ongoing debate for millennia.1
On one side of the debate are those that value the freedom of full ownership and not having a mortgage, while on the other side are those in favor of keeping the low mortgage and using the extra money to invest in things like the stock market or real estate or their cousin’s burgeoning hemp handbag endeavor.
When it comes to paying off your mortgage early there are certainly pros and cons that easily make the decision much harder than any amount of complex math on a spreadsheet can adequately account for.
Ultimately, the choice becomes a very personal one that can’t easily be proven the superior choice in any kind of court of public opinion.
And while we would all love to have the collective wisdom of the financial gurus out there cheering us on and defending us against the haters, the simple truth is that’s just not going to happen.
Paying off your mortgage early (or choosing not to) is a matter of personal conviction and you’re going to have to trust yourself more than the voices ricocheting across the internet or across your Thanksgiving meal.
So rather than couch this as pros and cons, we’re going to look at the valid pros of both paying off your mortgage early and keeping your mortgage long-term.
My goal is to help you make an informed decision that is best for you and your family. (Thanksgiving relatives excluded, of course.)
The Pros of Not Paying Off Your Mortgage Early
1. Increased Cash Flow
When it comes to personal finance, cash flow is one of those big cornerstone principles that a lot of the other personal finance decisions depend on.
In a nutshell, cash flow is simply the amount of available money you have month after month to pay for things.
Cleary more cash flow is better than less.
There are two main ways to increase your monthly cash flow:
- Reduce your expenses.
- Increase your income.
When it comes to your mortgage payment, which is an expense, getting your mortgage payment as low as possible is certainly a viable way to increase your cash flow.
There are a few different ways to decrease your monthly mortgage payment, but by far the easiest and most popular is to extend your mortgage payment as long as possible.
This is why most people don’t balk at a 30-year mortgage. Stretching your monthly payment over 30 long years reduces the required monthly payment, increasing your available cash flow each month.
From a pure cash flow point of view, extending your mortgage payment as long as possible is a great way to go. There’s no arguing that.
2. Increased Opportunities
Increased cash flow each month leads to even more opportunities, like having extra money to invest in your 401k, or in additional real estate, or in your cousin’s door-to-door ham sandwich service.
Two of those three opportunities are good things, and if all your money is tied up aggressively paying off your mortgage, you simply won’t have the spare money to take advantage of these potentially lucrative opportunities.
Now the math nerds will often show up with their fancy calculators and overengineered spreadsheets to show you the benefits of paying a mortgage on a low 3% interest rate and using your extra cash flow to invest in a stock market that returns an average of 7% annually. That’s a 4% bonus in your favor!2
And the math nerds are right – sometimes. (We’ll break down this often oversimplified math problem in a future post, but know that this argument isn’t always correct.)
But when the math nerds are correct, it’s nice to have that extra cash flow each month to keep more options on the table for you to participate in.
3. Forced Savings Plan
If you look at your home as an asset that is going to become more valuable over time – and certainly over a 30-year period, history has shown that to be very likely – then it’s possible to look at your monthly mortgage payment as a forced savings plan.
Instead of placing your money in the bank, you’re placing it in your home.
And many years from now, as your home has skyrocketed in value, when you decide to sell your home you are getting all that money you paid toward your mortgage back, plus hopefully even more.
Although it took many years to see the fruit of your consistent mortgage payments, you ultimately got a significant benefit from it.
And unlike a well-meaning plan to save a certain amount of money every month for a rainy day, a plan that often gets derailed as many of life’s unforeseen obligations come crashing in, your mortgage is more or less seen as a non-negotiable expense.
You are forced to pay your mortgage every month because it’s contractually obligated, so you can’t just skip it whenever your daughter needs braces or the bills from your knee surgery start showing up.
It’s a forced savings plan that you will most likely stick to and that will benefit you in the long run.
The Pros of Paying Off Your Mortgage Early
Just like there are good things about keeping your mortgage for a long period of time, there are also many good things about aggressively paying off your mortgage.
Let’s take a look at a few of those now.
1. Freedom from Financial Debt
For many, having debt is just a normal part of life.
Being in debt and owing significant portions of money to others, whether it’s on a car payment, credit cards, or a mortgage, doesn’t weigh on everyone the same way.
But if you’re one of those who doesn’t like the feeling of being under the thumb of a credit card company or mortgage company, then there is tremendous freedom in being able to break free from the chains of debt.
While a mortgage is generally described as “good debt” because it is seen as an appreciating asset that will hold its value and possibly increase in value over time, being tied to that monthly mortgage payment can be a constant point of stress and even a reminder that you don’t really own your house – the bank does.
And as co-owner of your home, the bank has the right to take it away from you (foreclosure) if you ever find yourself in a position where you’re struggling to make your monthly mortgage payment.
While most people never think that such a horrible event is going to happen to them, the truth is that it certainly can, even to the best-intentioned people, and it’s not something that anyone wants to experience.
Paying off all your debt completely, including your mortgage, provides a significant level of freedom that simply can’t be found through many other means, and that’s not a feeling to be taken lightly.
2. Even Greater Cash Flow
We discussed the concept of cash flow in the pros section for keeping your mortgage payment for a long time.
But there’s also a cash flow argument to be made for paying off your mortgage early.
Obviously, if you pay off your mortgage and that monthly expense disappears from your life, your monthly expenses would dramatically decrease and your cash flow would expand tremendously.
That is a huge win!
In the case of paying off your mortgage early, the caveat is that while you’re in the process of aggressively paying off your mortgage, your cash flow actually decreases, limiting your opportunities to do other things like investing more money, buying real estate, or funding your cousin’s organic ice dispensary.
This is definitely a trade-off, but if you’re able to pay off your mortgage aggressively and relatively quickly, there’s an argument to be made that being mortgage-free for…say, the rest of your life…is a huge cash flow win.
3. Significant Peace of Mind
Peace of mind is such a huge component of this argument that it deserves its own section.
Peace of mind is something that the spreadsheet nerds have trouble baking into their algorithms, so it often gets minimized or ignored altogether.
But the reality is we are all humans filled with goals, dreams, desires, and emotions, and it’s impossible to break those down into a neat formula on a spreadsheet.
Knowing that you 100% own your home without a mortgage is an incredibly freeing feeling that only those who’ve achieved it can truly express.
But knowing that your home is completely paid off and your mortgage payment is gone is just the beginning.
The truly magnificent blessings don’t show up until the darker times in our lives start to rear their heads.
Of course, none of us ever thinks that we will lose our job or get laid off, but it happens to the best of us. (Even me.)
But losing your job becomes a much less volatile event when you don’t have to worry about losing your house in the process.
Without a mortgage payment, you’re able to focus on just getting your next job and not worrying about missing payments that could lead to losing your home.
And when one of your kids needs braces, and you see that staggering 4-year cost, you can be thankful that you don’t have a mortgage payment siphoning away so much of your monthly paycheck.
Or when that crazy unforeseen medical event occurs and lays you up in the hospital for a month, you can actually focus on your recovery and know your family is going to be ok.
In all these situations, the thought of not being able to pay your mortgage or losing your house never even crosses your mind.
These kinds of peace-giving moments will simply never show up on a math-oriented spreadsheet, which is why making the decision to pay off your mortgage early (or not) is such a personal decision more than a mathematical one.
So is paying off your mortgage early the right move for you?
As you can see…it depends.
If you’re comfortable holding mortgage debt and using the extra cash flow to take advantage of opportunities to invest and acquire more money-earning assets, then best of luck to you.
I would simply encourage you to put as much energy into your catastrophe plan.
- What happens if you lose your job?
- What happens if the stock market or housing market goes into a year-long slump?
- Who keeps juggling the balls if you suffer a significant medical event?
If you have solid answers to all these questions, then you’re in a healthy place to keep moving forward.
But if the idea of the bank having the right to take your house away in the event of any of the negative events listed above causes you considerable anxiety, then buckling down and committing a few years of your life to knocking out your mortgage debt early might be the breath of fresh air that completely changes your life.
Make no mistake, some negative event is going to occur.
I know we don’t like thinking about that, but that’s no excuse for not making sure we’re prepared as best we can.
Paying off your mortgage early may not be part of your preparedness plan, and that’s ok. But for some of you, destroying your mortgage might be the best part of your long-term financial plan.
Are you working to pay off your mortgage early? What were your main reasons for doing so? If not, what were your reasons? I’d love to hear your feedback in the comments.
- Ever since the first peasant petitioned the ruling lord of the kingdom to purchase his small field for his grazing goats, and the ruling lord produced relevant figures on his abacus showing the better value was continuing to lease his land and pay profits to the lord so as not to be beheaded.
- Except when it’s not. Math nerds aren’t always right about everything.