This is a guest-post from Free Money Finance. It's a follow-up to Mrs. Micah's post earlier today.
A few weeks ago, J.D. and I were chatting when he asked me what it felt like to be debt-free. 
He'd read on my blog that I had no debt and was curious if I'd write about it for Get Rich Slowly. In particular, he asked me to communicate both how I managed to pay off my mortgage (the biggest debt most people have) as well as how it felt when we did so. I was happy to accept his offer.
Just to note, the purpose of this post isn't to debate whether or not paying off all debt is a good idea (versus only making mortgage payments and investing the rest, for example), so I've purposely left it out. My goal is simply to tell you our story — what happened and how we did it. From there, you can decide whether or not this path is for you. Since my wife and I are debt-haters, this option simply seemed natural to us. In addition, I can also tell you that living ten years without any debt has been a great feeling.
In the mid-90's, we moved to the southern part of the U.S. Here's how we paid off our mortgage in 1997 and haven't had one since:
- We spent less than we earned starting as soon as we got married in the early 1990's. We saved quite a bit, combined it with some previous savings and the equity from the sale of our Northeast home, and were able to come up with a down payment of about 35% of our new home's value.
- We bought a house we could afford. Instead of stretching to buy the biggest house possible, we decided what we needed in a house and purchased a place that met those criteria. In the end, we only borrowed about 60% of what the bank said they'd let us borrow.
- We applied everything we could to retire the mortgage: extra payments (from still spending less than we earned), pay raises, bonuses, income from a side business, my wife's income, and gifts. If money came in, it usually went to paying down the mortgage. However, we did not sacrifice what we considered to be better investments, such as fully funding my 401k.
- Within five years, we had the house completely paid off. We lived there a few more years, then when we moved to Michigan, we sold the house and paid cash for our new one. It's now been ten years since we've had a mortgage.
In the early years, I got the biggest thrill out of paying extra on the mortgage. I'd make an additional payment and wipe out six to eight payments at one time (Quicken would show me the results.) During the first year, I eliminated several years of payments on a 30-year mortgage (something like eight years) and the thrill of making such great progress simply built and built into a snowball of enthusiasm. Each payment I made had a dramatic impact on the total, which fueled more payments, which had more impact, which fueled more payments and so on and so on.
Then there were the big hits — when I got a bonus or when we decided to forego a big vacation to put it against the mortgage. These large impacts to the debt made a huge difference and added fuel to the fire.
As we got close to paying off the entire amount, we were looking for anything we could find to put towards the mortgage. When the day came when we paid off the whole thing, we were thrilled, but I don't think we realized the comforting feeling that was to come.
It's been a long time since we've had a mortgage, so much of the “newness” and “excitement” has worn off. But it's been replaced with a very peaceful feeling. You often hear the words “debt freedom” talked about, but can't really grasp what they mean unless you are free from debt. I can honestly say that there is a great financial peace in knowing you don't owe anyone anything.
Since we've paid off our mortgage, we've been able to save a bundle and give more to charitable causes we support. We're now on track to retire by age 55 with more than enough to live on and no debts outstanding.
Congratulations! We paid ours off too last year. Like you said, there is nothing like the feeling. It’s also going to make it that much easier for me to quit my day job next year.
It has to be the best feeling to pay off your mortgage. I am getting close!
Congrats and thanks for sharing your story. We have a somewhat similar story altough we do invest some and prepay some but we are only 6 years (and maybe sooner) away from being mortgage free as well.
Buying a much cheaper, smaller house than we could afford has made a substantial difference to us as well.
It’s good to hear that you’ve never been tempted to “upgrade” once you’ve paid off your mortgage. It’s very reassuring!
That’s a great story! I just don’t know how you’d knock out 8 payments at once? Maybe I’m missing something… I’m still renting, so I have a long ways to go, but I couldn’t imagine ever paying 8 x my rent in one month. Thanks for sharing!
Thanks for this article! I love hearing how others have done it and what motivates them. Other than having enough money for retirement, this is my only financial goal.
It wasn’t until an article in GRS that I pondered the idea of paying my mortgage off early. I have read so much about the pros and cons and decided that it would be SWEET to be 100% debt-free, so I have been putting as much as I can towards it ever since. A lovely side-effect of this is that I’m trying to live even further below my means in order to reach this goal. Instead of automatically eating out all the time, I try to eat in more often, and spend less in other ways as well. In fact, we just turned off our cable!
Just like you, this hasn’t really affected contributions to other investments and retirement. To keep me motivated, I look at how much time I’m cutting off the loan, and also what the interest expense per day of living in the home is. I have cut it drastically since that GRS article!!
We got ours paid off early this year. The ramifications are still sinking in…all of which are well worth it!
Congrats and good luck going forward.
The only issue I’ve run into since going debt-free is finding the motivation to continue working at the rate (number of hours) I have been.
must be nice!
my mom has two homes.. one she currently rents out.. i wonder if this is a good time to sell the rental in order to pay off her mortgage in full? or should she hold on to it for a while longer?
My wife and I are very close (less than a year) to having our mortgage paid off. I bought the house about five years ago. We’re following pretty much the same plan. I’m not quite to the stage of digging through the couch cushions looking for money to pay it off an hour sooner, but now that I think about it, that might not be a bad idea…
Her parents did the same thing sometime in the 1980s, and both of them retired in their early 50s despite very modest salaries.
One thing that helped us was that we started small. We paid off my car early (I’d already been making extra payments on it anyway), then we made huge payments on her car (often $1,000 or more) until it was paid off too. That eliminated almost $700 worth of monthly expenses, and that alone is enough money to pay off a modest mortgage in half the time.
I used a mortgage payoff calculator to figure out that on my particular mortgage, even an extra payment of just $10 a month pays the house off a full month early. So even small amounts paid consistently make a big difference.
I’m looking forward to not owning anything. As long as that $1,100 bill is coming in every month, I’m essentially my employer’s slave. But like my boss says (he’s on a similar plan), once you own your house, even making minimum wage at McDonald’s provides enough to pay your monthly living expenses.
Right on, Free Money Finance! Thanks for sharing your story.
We were on track to have our first home paid off by the time we were 55 (edited–I rechecked my math, and it actually would have been 50). If we were still living there we’d almost certainly be paying twice the principal per payment and would have the mortgage killed before 50 (edit to make that 45). But an opportunity arose to buy another affordable house and rent out the first one.
We’re still psyched to see the principal value on that house drop in ever-increasing increments. (In fact, this Saturday we’re planning to open a bottle of wine to celebrate that the largest place value in the principal will change from an “8” to a “7” on 12/1.) It’s made even more enjoyable because it’s being paid by other peoples’ money. ;)
Lord willin’ and the creek don’t rise, we’ll do this again in the next few years–buy another place and rent out our current residence.
In time we hope the numbers will snowball to the point that other people’s money will pay for our residence, too…and keep rolling along once that’s paid off as well.
Wish us luck!
Really inspiring! I’ve never paid off a mortgage but you make it sound so doable. But I can say this for myself: I have no debt right now of any kind.
Here are the factors behind how we did it…
1) Move to cheap area: We moved from an expensive place to a cheap place (California to the Northwest, about 8 years ago). Sure, we missed a lot of appreciation in the last few years (over $500K) but we left that crazy area behind for a “more normal” place (and pace). See if your work will support telecomuting!
2) Don’t “upsize” unless you have to: We had enough money ($250K) at the time to pay cash for the home that we bought or , instead, to make a big down payment on much more “prestigious” house. We opted for the simpler home and have not regretted it one bit. (You don’t *need* to buy that huge house, after all.)
3) Pay off if you have extra: Later, as we accumulated some moolah, I found that I was investing the extra in CDs. It was a “wash” between paying off the mortgage or continuing to buy CDs. So I paid off the mortgage (and now I don’t even need to itemize my taxes anymore!)
Looking back at what I wrote, I have to say that we probably did it the easier way. Congrats to those who scrimped and saved—it must be that much sweeter for you!!
JB —
The reason I was able to eliminate many payments early on was that most of the payments in the first years of a 30-year mortgage usually go toward interest. Instead, I made payments to the principal (a small percentage of the total payments early on) which also eliminated the associated interest payments I was supposed to make. This way I was able to eliminate multiple payments at once.
I agree completely. Debt-free living is the only way to go! You can’t put a price tag on the freedom.
Great post and congrats on being mortgage free for so long! We are not even close to paying ours off, but when we refinanced from an ARM (it was a great rate…until it wasn’t!) we set up a 15 year fixed. I always pay at least $10 of extra principal each month, and it’s nice to see that on there each statement.
Great post, I’d love to hear more about your extra payment process, auto pay or checks, principal vs. interest and how did you get Quicken to track it for you. I’ve got my mortgages in Quicken (we have a primary home plus investments) and when I try to get Quicken to track my payments it deducts the whole payment from the principal (even though I’ve put in all the terms, interest rate, etc.). I hate Quicken and it hates me.
That’s awesome… we just got started with our first house. Something to aspire to!
Congrats on one of life’s greatest financial accomplishments (THE greatest, IMO)! Seems like most folks get “debtor’s dementia” when they take on a mortgage … can’t imagine ever paying it off or remember that the interest and cash flow demand is killing them financially. Pretty soon second mortgages and home equity loans seem like good ideas. Go figure.
You are an inspiration. I would just be happy getting my unsecured debt paid off.
Thanks for sharing your story!
Sam,
Elsewhere in Get Rich Slowly is a downloadable amortization schedule (posted on 10/1/07). It is an awesome tool. Plug in your numbers and the results are very inspiring.
Personally, I like to plunk down $10,000 all at once when I prepay. That way you can check your amortization schedule and see the $10K increments when they go in. Maybe I’m anal, but I like to ‘double check’ how my bank computes the interest and payment schedule. Making fewer large payments is easier to track compared to lots of small additional payments.
Also, I am a firm believer in establishing an ’emergency fund’ before you prepay or invest in stocks. … if you really like to ‘live on the edge’, you could use a HELOC as your emergency fund, … and hope that you don’t have any emergencies. (The key being that you need to retain some liquidity, and equity in your home is not the most liquid investment.)
Also, what should be obvious, if you have multiple mortgages, pay the high interest ones first … unless you are a firm believer in the ‘debt snowball’ method (which is psychologically sound, but mathematically flawed).
Relax, have fun. It’s a long life (hopefully).
I paid off my first house (all $180k of it) in two years, by age 27. Like you, I lived very frugally and dumped every single spare penny into the mortgage (having a highly paid consulting job didn’t hurt either).
It was a great feeling not being in any debt, but like poster #6 I had trouble staying motivated and continuing working. I’ve said it before, debt is a great motivator for going to work, so I eventually upgraded to a bigger house along with a mortgage that I can wipe out in a few years (or immediately, if I liquidate other assets) should I choose to do so. I’m not sure it was a smart financial move, but it’ll keep me working until I have saved a sufficient amount to retire with (around $2 million).
I completely agree. Debt-free is the only way to go. The peace of mind that brings is worth far more than the potential additional sums of money that you may or may not end up with not paying the house of early.
We too scrimped and saved and sent extra money in whenever we could. Three months before the big .com crash our investments had grown to equal what we owed on the mortgage. Due to my brilliant forecast of the stock market we got out at the very height of the market. Okay, that is how I like to tell the story. That did happen but the truth is, it was shear blind luck!
An advantage unforeseen for us is that without a mortgage, we have been able to put our kids through college without any debt. I would not be able to do that if I also had a mortgage.
Little by little it can be done. Even a little here and there has enormous impact. It is easier than you think.
We paid off our mortgage in short order, and while we do look at bigger, “better” houses sometimes, we haven’t moved. When we were looking for a house, the bank told us how much we could borrow and what the monthly payments would be. I think a lot of people take that kind of information from a bank or real estate agent and then buy as much house as they can. Instead, we chose a much cheaper house and paid 20% down, so the mortgage wasn’t that big to begin with. But we had bought when rates were realy high, and we didn’t want to pay all that interest. So, we took the amount the bank had said we could afford– they were right! — and made that payment every month so the mortgage just melted away. Then, we were able to keep paying ourselves that same mortgage payment– some of it has gone into savings, some toward helping out relatives, and so on. As our income increased, so did our standard of living. We’ve also done a lot of remodelling of this house, but always paid in cash. We don’t think of the house as an investment–we may not “get back” what we’ve put into the house (built in bookcases, tile floors, etc) but we are paying a lot less each year on living expenses than we would be if we hadn’t paid the mortgage off, or if we’d bought a bigger, newer, house to begin with. As Chris V above implied, it’s really a matter of whether you define yourself by where you live, the size of your house etc or if other things are important to you. It actually helps a lot when you’re having a bad day at work to think “I could quit right now and it would be OK.” Really owning our house, not just sharing it with the bank was step one for that.
Thanks for your great story of encouragement for others. My wife and I paid off our mortgage earlier this year and it has been great as the payments we were making to the mortgage company are now going into our investment account each month. There is nothing like the peace you get when it sinks in that your are totally debt free and have much less stress and worry. That paid for roof over our heads, results in a much more restful sleep each night.
My wife and I are tossing around the idea of moving into my parents house and living with them for a few years. We would save TONS of money. They would charge us nothing for rent, food, utilities, etc. We would just pay our insurance.
Imagine having your paycheck go directly into your savings account. It’s kind of a hard deal to pass up. We get along with my parents fine. If we can just get past the social stigma, we’d have a HUGE down-payment for a house in the future. Maybe even the WHOLE payment.
Any thoughts? Anyone done this? As a side note, they have plenty of room, live on a beautiful lake and my mom is a great cook!
This article was so timely for me. After finding your amortization calculator this morning I made up my mind to go ahead with my pay-off-the-mortgage plan. I ran to the bank at lunch and plopped down $25,000 towards my loan. When I came back I found this article and it summed up my feelings exactly. I am so excited about paying off my house 4 years from now if I stick with the plan. It is good to hear other success stories and how much peace being debt-free brings. Thanks for the great article!
I’ve been debt free since age 47 and we own 2 homes free and clear, have good retirement savings and college funds. We both started with nothing. How did we do it? Live below your means, don’t look at what other people have, max out your 401k from the start, if two incomes, buy a house you can afford on one income, don’t be afraid to try for a better paying job/position, work hard, but have fun. Enjoy the free or cheaper things in life like a sunny public beach, walk in the park, library, camping, bird watching, reading, fishing, etc.
Matt, as long as you stay married. Sounds nice in principal, but living with people always puts more stress on a relationship. You have to behave and have more rules. It’s life right?
I know tons of couples who try to do it, the longest was 6 months. Usually the person whose parents it’s not has a harder time adjusting. But it’s like living with roommates.
Seven years ago my wife and I bought modestly, negotiated well, plunked extra down up front.
Last year I lost my job due, in part, to health matters. Thirteen months from next week, right on schedule, our house will be paid off.
Even if Social Security continues to stiff-arm me, two years after the house is paid off, we will be debt free again.
That was a fun article to read, I always enjoy stories of people taking finance to somewhat extreme levels.
I am curious, though, you mentioned something of a snowball effect, but wasn’t it really the opposite?
If you make an extra payment in year one, you can see several payments in year 30 knocked off, but as your principle dwindles down, the amount you save in interest per extra dollar paid gets smaller and smaller.
You would have to really hate debt to do this I think.
I would set investment goals and take advantage of the tax benefits of the mortgage. Figure 6% mortgage minus tax savings vs. 10% stock market returns in the long run. Mathematically every dollar invested rather than put into the mortgage gets you further, but getting motivated to make financial decisions is more emotional than logical…
But as for the snowball effect, I would get more excited watching my investment returns (dividends, or whatever) getting bigger and bigger as I invested, instead of my avoided mortgage interest getting smaller and smaller…
He referred to it as a snowball effect because once an extra dollar is paid off early, you save the interest on that dollar over the life of the entire loan. Those early payments pay dividends (so to speak) through to the end of the mortgage period.
Okay…I just have to ask…what if you invested the money elsewhere that you used to pay off the mortgage?
What about your mortgage interest being an income tax preferred debt?
I obviously do not know your age…I’m assuming you have enough to save for retirement…
I’m all for the feeling of “peace” but is this really the most effective way to create wealth?
I hear you, Rhonda, and I’ve been having this conversation a lot lately as I work through the alternatives.
Conventional wisdom says that it’s better to take the mortgage and invest the lump sum. However, I’ve run the numbers several times and the end result of paying cash for a house and investing what would have been my mortgage payment vs. taking a mortgage and leaving the lump sum conservatively invested is nearly the same (give or take about $30k) at my expected retirement age. I suppose I could put the money into riskier investments for a hopefully larger return, but I’m more of a sure-thing kind of gal.
I certainly understand that I’m giving up the mortgage interest deduction, but the peace of mind of being completely debt-free before age forty is so intoxicating, it’s worth it to me. And, as someone who’s been saving at least 15% (I’m now up to about 28%) of my income since age 22, I’m sure I’ll have enough “wealth” to have a comfortable retirement, no matter what I choose to do.
Thanks for your story.
It’s interesting that getting of of debt is still a concept that most people doesn’t understand or believe in.
We and our parents are debt generation…
@Rhonda,
I feel the post adequately addresses the questions you’ve raised. A disclaimer states that this story is not intended to be a debate about the best use of the extra money used to pay off the mortgage. The writer also clearly states that their 401k was fully funded in the process. This post is merely one person’s story of what he did and how it made him feel.
Additionally…
At my marginal tax rate, I’d reduce my taxes about $2500, but I’d be paying about $10k in interest. I’m still out $7500. Seems like the mortgage holder’s the one winning in that case. Do you disagree?
To Matt (Comment 25), I’d advise against it. I did it with the inlaws, may have been different circumstances, as it was a small house, and we had a kid, with another newborn on the way.
I thought we’d save a packet, and we did save a bit extra, but it’s not really worth the savings as opposed to renting a place.
I still chipped in towards bills etc, about $100 a week, and still bought our own groceries ($200 a week), and so opposed to renting I think we would have saved about $200-250 extra a week, but to not have your own space I don’t think it was worth that.
We lasted about 9 months, but since then the relation with the inlaws isn’t really the same.
Depends if that $200 a week extra would make a huge difference to any savings you current can make, if so, then it may be worth it to get a deposit building. For me, the $200 extra a week wasn’t an enormous addition to what I can (and do) already save each week.
I am making modest additional payments on my mortgage. Like JD, my father died early, so I balance living in the now with trying to be financially sound. To me, I’d rather go on trips while I’m still alive than risk doing nothing, being overly frugal, and dying early with no life experiences.
Wow, this post was really inspiring. I recently (1 1/2 yrs ago) purchased my first home with my new wife. We make an additional $100 payment to our mortgage every month to lessen the ultimate interest burden. This post is inspiring me to make a plan to pay it all off even earlier! Thanks!
JC —
In addition to Nickel’s response (which was accurate), there was also the emotional snowball — the more we saw the debt dropping, the more we wanted to add to it to pay it off asap.
Rhonda —
I knew someone would bring this up. ;-)
As noted in the post, I did NOT sacrifice retirement savings during this time. I put in the maximum I could into my 401k — not just the max to get the full match, but the max I could within my company’s plan.
That said, it’s likely that the numbers will show a better result with investing the money and holding the mortgage. But for us, we wanted to get rid of all debt, knew we would be disciplined enough to save more later, and didn’t stop retirement saving along the way. (many of the same sentiments voiced by redhead above). We’re now within a decade of retiring early.
JC, thanks for sharing. You cannot put a value on peace of mind.
My husband and I bought a home we could afford on 1 income. We then worked at paying the house off. Sometimes paying 200.00 a month extra sometimes a lot more but always paying something extra. I had retired at age 48 a couple years ago and my husband was going to retire at 55. We were within 3 months of paying the house off when he suddenly and unexpectedly passed away at age 52 earlier this year. I paid off the house as scheduled and I have been able to live comfortably ever since he passed. It is huge peace of mind to not have a mortgage. I can’t tell you how much comfort it has given me with him gone that I don’t need to make a mortgage payment. With property taxes and insurance I still pay around 200.00 a month before utilities. I will need to go back to work because I will have no medical when the cobra runs out and that is not something we had ever taken into consideration. Medical insurance. But I could work a part time minimum wage job as long as it had decent medical. All because of our savings and no mortgage.
J.C. at #30, in regards to interest: When you make extra payments, it’s going toward the back end. So the extra payment I make goes towards the very last payment, which would be the one with the lowest interest payment. So you maintaing the snowball effect.
Rhonda at #32, yes, theoretically you’d be better off investing the money rather than paying off the mortgage–if everything goes right. The problem is knowing if everything’s going to go right. When I make an extra house payment, I’m absolutely, positively guaranteed a 5.75% return on my money. There’s no investment that’s an absolute guarantee. And what if I lose my job for whatever reason (something that happened to me twice in my first year of marriage–due, ironically, to those employers having too much debt)? If I own my house, it’s not a big deal. If I have to liquidate some investments to pay the mortgage and the value of those investments has gone down, it’s a bigger deal.
I lost nearly half my savings when the market went south in 2001 and I still haven’t completely recovered from it. Had I dumped a chunk of that money into a house instead, I’d be debt-free today.
So I’m much more comfortable paying off my mortgage than investing right now.
Great post! I always wrinkle my brow when I see a question on a form about my home — “Do you rent or own?” Well, neither … the bank owns my home, and I’m slowly buying it from the bank. What a great achievement to *actually* own your own home!
How do you know FMF that you aren’t losing money with a paid for home instead of renting? Like the MMND and the lost opportunity costs?
I like owning too, but I just wondered if you considered renting and not having a paid for mortgage?
FMF? MMND?
Wow. My goal is to retire by 47. Sounded like a good number. If this is how you do it, count me in. I feel inspired.
LivingAlmostLarge —
Not sure what the MMND is, so I’ll skip that part.
No, I never really considered renting, but I understand what you’re getting at and have seen how this may be a suitable (and profitable) option for some.
Renting (even renting a house) presents a whole set of lifestyle challenges that we’re just not up for. So even if renting was slightly better than owning in every case (which it isn’t), we would have paid more to own our house simply to avoid dealing with a landlord, not being able to customize the property, having an on-going payment (remember, I have none now), etc.
I’ve run those numbers, too, but in the end, I come out even. The interest on the money I would use to purchase a house covers my rent almost exactly, but over the long haul, renting subjects me to inflation and my landlord, who can decide to sell the property out from underneath me. Owning outright is a hedge against future inflation, and nobody is going to evict me as long as I continue paying my property taxes.
As I wrote before, I suppose I could continue renting and put the money into higher-risk investments in the hopes of a big payoff, but I think I’d spend a lot of time worrying about those investments and my landlord’s whims rather than enjoying life.
Furthermore, I can always invest the money I would have been using for a mortgage payment once I’ve paid off the house. I’d be less risk-averse in that situation, since I’d have already taken care of my basic needs.
MMND (Mommy Millionaire Next Door) argues that renting makes her richer as opposed to owning. Here are some of her posts regarding this line of thought:
http://millionairemommynextdoor.blogspot.com/2007/10/i-get-richer-as-renter.html
http://millionairemommynextdoor.blogspot.com/2007/10/dispelling-myth-that-home-ownership-is.html
Basically, she says that the (stock) market will generate higher returns than a house over the long run, even factoring in inflation, etc. Check it out. There are good reasons for owning a house (as I’ve noted in my blog), but financially speaking, renting will generally get you further ahead if you run the numbers, using historical stock returns vs home prices (the recent housing boom phenomenon not withstanding).
Of course, having *all* your assets in the stock market is a pretty aggressive investment strategy (even if some of the stocks are REITs). I like playing it safe with at least some of my assets, so that’s where my house comes into the picture. YMMV.
The thrill of paying off a mortgage is the opposite of the agony of never paying off rent.
I hope you’re all motivated to pay off that mortgage now.
Hmm — I can certainly see the point in arguing between the advantages of renting vs. paying a mortgage. But the relative advantages of renting vs. a paid-in-full mortgage?
Hmm, I’d take the paid-in-full mortgage any day unless one factor was the most important: that I knew I’d want to move relatively soon.
paid off before retiring 3 yrs ago–via Suze Orman…..great feeling, no house payments….work a little part time..very part time..smile.no debts…save a lot with Money Markets…no plans to move from sunny California–
We paid off our house 2/06 small cape cod in Northeast, we don’t make big money (nurse and security officer) 1 child who we paid for college completely,paid for wedding, small amount given for down payment on her house.We are finishing off credit card debit.My point to this is many times I read pros and cons all types of sources but it came down to if either of us got laid off/fired we can stay in our house and do almost any job to cover the basics but we are safe.We have health ins, long term disability,term life all the safety nets in place and retirement funding of 401K and 403b.More people need to write about specifics on actual examples of how we did it for ideas for others.I used paper calendar for whole year, plotted out each pay check and what it would knock off.2 times a year there are 3 pay checks in a month those were used for lump sum payments or for a repair/upgrade in the house.
The other aspect to consider with the “what if you’re losing money by not renting/paying the house off early?” argument is: if you’ve got a completely paid off house and money in the bank to cover your foreseeable needs for the future, does it really matter if you could’ve earned more money doing it the other way?
Once your needs are taken care of, “extra” is more a means of keeping score than anything else. Sure, there’s a measure of security in having a bigger number there to cover things you didn’t expect — but there’s another kind of security in not having to depend on your income-generating potential to pay for your shelter.
Just curious to know/get an explanation why paying off mortgage is better than keeping mortgage to full term.
Other than not having a debt, I want to see some math why it is better or worse to have a mortgage.
I am actually for paying off mortgage, but somehow, everywhere I look, people like Dave Ramsey, Rob Black, etc. all say pay off all debts except for mortgage (and college loans I think) because this is a good debt. I think I am missing something.
I have friends who upgraded to million dollar homes to get an even larger mortgage because their financial advisors told them so. They said something about AMT but I did not get the full details.
@doughboy
The nature of a mortgage is such that during the 1st few years, the majority of your payment is going toward interest, while at the end, most of the money is going toward paying down the principal. Therefore, a lump sum is “worth more” in paying down the amount you owe the earier on it is in the term.
Consider a $100,000 30-year loan at 6% as an example. If you made no extra payments, you would pay almost $216,000 total to pay off a $100,000 loan, most of which goes to the bank.
The reason that a mortgage is sometimes called “good debt” is because it is often at low interest rates compared to credit cards or the rates of return in the stock market. Some people argue that since you can make more than 6% in the stock market, you are better off not prepaying your mortgage. But any money you put into your mortgage is a guaranteed rate of return, while there are no guarantees in investments.
I really enjoyed this post and I am encouraged to see someone advocating paying off your mortgage as soon as you can.
We paid our mortgage off early as well in only seven years [of a 15 year mortgage]. We did the same as many other people in that we live in a house that cost LESS than we could afford. We also did not forego contributions to our 401(k) or regular savings. Rather all bonuses went to the mortgage. We did not purchase things we did not really need. Surplus funds each month either went to savings or to pay down the mortgage.
We enjoy the feeling of security and we will be able to save the money we would have paid for an additional 127 payments. Now our goal is to continue to build up savings so that we will BOTH own our house and have a stream of income from investments which will give us the flexibility to retire early, take less stressful jobs, or other undertakings that might come to mind.
Matt,
You’re saving on rent to begin with but to also leach off your parents by not helping them with the food budget, utilities, cable et al is just wrong. It will just lead to resentment on their part and leave you open to being called a leach (and rightfully so). As a minimum you ought to assist them with the food bill – as they’d have utilities, cable bills (though not as high) without you being there. I expect you to do the right thing.
Great post. My husband bought our house 6 years ago, about a year before we started dating. In the past year we started our own business and own a writing company working from home. We’re $40,000 away from paying our house off. Pretty much anything we can put on the house has gone on it and we’ve made improvements to the house along the way. We’ve been literally making payments of $5-$10,000 a month on our house when possible. Our business has totally allowed us to do it. We’re planning on having it paid off by June of this year, just in time for our Vegas vacation.
We’re so excited. We don’t have any other debt than the house. We paid cash for our brand new car and our other car is paid off. We have neglected our retirement, but we plan on being able to make up for that in the coming year easily. I’m 25 and he’s 35, so this is so huge to us. We don’t know many people who are retired with a paid off house much less people our age.
Wow, I am so excited … I am only 8 months away from paying off my mortgage. I’m looking forward to be 100% debt free, yeah!!!! My wife and I bought our house exactly 8 year ago. I remember our first day when we received the keys to our first home, it was so intimidated …you know as a first time home owner! What do we do now. …But, after we moved in everything fell into place and it has been smooth sailing ever since.
The closer it gets to paying off my mortgage the longer it feels. Hey, stay focus and you too we will be able to enjoy the joy of a debt free person. God Bless you and remember that God always loves you.
Tax break on mortgage isn’t as big as people think. Married filing jointly get a 10k tax break if they don’t itemize. For us, we paid about $17k in interest last year, which is really $7k over not itemizing, for a total savings of $2k – $3k (30% taxes or whatever).
Secondly, Buffett said long term stock gains in the future will be more like 6% a year after taxes and that the future won’t keep up with the past returns. Buffett is a smart dude, so it seems like a wash.
Lastly, almost all financial advice seems to be for people who are looking to work like dogs for 40 years, invest, then retire with a few million completely bored in Florida. Seems like mortgage payers enjoy a more paced existence. So while you might make more in other investments, you don’t get to touch them until you’re retired. Not everyone wants to retire or have a ton of money. What am I going to do with millions when I exhausted from working? I’d rather take some mini-retirements in my 30s and 40s and continue to work as long as I feel like it. Seems more balanced this way.
This is a great article and really made me start thinking about it. I’m on board!
Brian – I can not agree with you more. I am about 2 years away from paying off my mortgage and being debt free and I too am excited about the possibility of taking several months off in a row in a “mini-retirement” while still in my 30s and on. I believe I can enjoy my time much more now rather than later. There is no guarantee that either myself or my wife will be healthy enough or even around long enough to see a full retirement at 65 or 70 when most others retire. You cant take your millions with you but you will have that piece of mind from day 1.
Brian, couldn’t agree with you more. My wife and I will be 100% debt free in about 2.5 years and we’re going to have a huge party afterward and invite all the people who said we couldn’t do it. Maybe we’ll send them on a paid vacation as well…just to humble them while we rub it in:)
I always hear about this concept of not paying off the house but instead working like dogs your whole life and investing like crazy in stocks for maybe $50,000 more when you retire. What? Does anyone know anyone who’s ever done this? I can manage to live this frugally for a few years knowing that there’s a big payout coming right up. But to be so frugal for you’re whole life just to die with a little more money(MAYBE)just seems rediculous to me. I’ll post again when I take my first minni retirement!
I just paid off my House. I had my Mortgage for a total of 8 years. This last year I concentrated fully on paying it off. It was hard at first to see all my paychecks go directly into my mortgage..After all I am American and I naturally want to buy stuff!
For me knowing that if I was hurt or lost my Job no matter how long I have been in my house it really belonged to the Bank and they are not in the forgiveness business!I have to admitt at this point it doesnt seem real.I really didnt think I could do it..WHOOOOOO HOOOOOO!!!
My wife and I sold some land we had in early 2007 and used the $100,000 profit we made to pay off our mortgage. My (former) accountant/investment advisor told us we were crazy because our mortgage rate was 6.25% and the stock market returns 10% annually. Well guess what, I would still be down 15% if I had invested that money and I would still be paying a mortgage each month. As a self employed contractor, I haven’t lost one minute of sleep during this recession because I’m mortgage free. What a feeling!
I can’t wait to pay off my mortgage as well. After seeing what happened in the stock market I am looking for a safe bet. I don’t plan to move anytime soon and I want to actually own my home… instead of using it as an ATM. I have been reading about the pros and cons, but the sense of sucurity from owning your house must be priceless. Like Bob said, you won’t lose sleep from your mortgage payment. I have a blog setup http://www.payingoffmyhouse.com to keep me honest. I know that if I am reminded daily of my goal I will eventually reach it.
Josh, I went to your ‘blog’ and all you have there is sponsored advertisements. Disappointing, thought you were genuine.. :o(
I am 2 weeks from writing my last check… and youll see it happen when I submit my video to the contest :)
My wife and I just paid off our home yesterday, and I turn 35 next week! It’s the best birthday present ever, and we’ll truly be independent this 4th of July! God has been good, and it is amazing how hard work and living simply can pay off!
My wife will be 39 when we pay our house off and I will be 47…. the world is open to us after that. I have been also contributing the maximum to my 401k for over 20 years. I just bought a house the size we needed, stayed in it, watched folks by houses too big, lose their jobs and lose their houses. I don’t care what anyone says, paying off your mortgage is one of life’s ah ha moments…. most folks keep buying a bigger one and working harder to pay for it. We are going to travel…. alot…. Maybe even buy a little place by the ocean… to eventually move to when we sell our “first house”… who knows… the world will be ours.
I think the number one reason to pay a house off…
The feeling or experiences (for once on your life) to be “un-plugged” from the over dramatized media on economic, and political housing news which cause people to panic over nothing.
Also, with a house paid off, you don’t need to be at the mercy of people who make boardroom decisions on whether your job becomes targeted for a layoff.
The impact of losing your job, becomes “a no-big-deal” moment, because you have the satisfaction of knowing, the only risks, truly falls on your employer, and not on the jeopardy of your home and/or neighborhood you love.
For me, the American Dream is not (and I repeat…) is not having the bank be your mortgage-holders. The American Dream, is the spirit and ideas of owning your home free and clear within a neighborhood you love, and improve. This is the best investment for our economy, because it’s a ROCK SOLID move which strengthens our values, and betters our neighborhoods IMHO. Buying and owning your home, is good for Americans.
If you find the right home, “buy it out-right” and make it an even better place.
Congrats on paying off your mortgage! I’d add that owning your house outright is not just great for Americans, it’s great for everyone! (I’m from Britain) ;)
I paid off my mortgage and got my certificate of title to my home today. It saved me tens of thousands of dollars in interest to throw some extra $$’s at it to pay it a few years early.
What a relief that now I will never ever be forced to leave my home if my financial circumstances turn bad. Security of tenure in your own home is the best feeling! No-one ‘owns’ my future decisions any more. Whew. :o)
We paid our house of LAST FRIDAY. This Friday, I will receive my first paycheck without having to pay anything towards a mortgage. The rules he describes above, such as spending less than you earn and buying a house than you can afford are a requirement. We were sending two mortgage payments a month. In the end, I decided to cut it short by several years by cashing out my 401(K) and paying off the house. Warren Buffet himself has already stated that investors can probably expect an average return of 4% annually this century. Century, not year or even decade. When you compare 4% return with my 3.75% mortgage, cashing out my 401(K) when it was at the top didn’t seem suicide. The peace of mind that I have felt since Friday when I mailed the cashier’s check can’t even be described properly with words. I left the bank shaking to drive to the post office to mail the check, the last check, to the mortgage company. I am no longer the bank’s CEO’s slave. I now can invest my monthly mortgage payment towards my retirement, but I will do it peacefully as I know the roof over my family’s head is ours. As of last Friday, my debt to income ratio is 0%.
We paid our house off in march. Man did April 1st feel good when we did not have that mortgage payment deducted. Instead we sent it to the retirement account. We Pay ourselves now. We are 41 and 42 living in a paid for house with no debt. We decided to to it in case the job went away. In our state it could happen at anytime being a teacher. So if it does we just need to pay taxes and upkeep. Heck we heat with wood so we could hunt for food. Happy to know we saved about 300000 in interest over 30 years by doing this.
Hi All,
Great Posts!
Q) We now have duplex, home, and Manufactured home paid off. Home is built so that we could split up from down and have seperate entrances/yards ect.. So we have rented downstairs for 3years(1410) ..paid off is great plus income.
Now we have the manafactured home vacant again as we carried note (is in great area) and they gave it back (after paying us $67k) so we confused … do we move into mobile home and rent our place or try to resale mobile(is in park only owners can live there)
is hard decision …
in any event is a good problem to have right now …
Answers to the above: NEVER MOVE IN W FAMILY THEY MOVE IN WITH YOU IS BETTER … UNLESS HAVE TO OR IS SEPERATE LIKE GUEST HOUSE…
One thing may help anyone trying to pay off … if you learn how to become a landlord(and this is not for the unwise) it CAN payoff if down right …
Option: can rent out anything you own with a mortgage … make it pay its own way …
I see properties with a mortgage like chains on my neck … and am firm believer unless one is well off that home should pay its own way ie it should earn its keep … consider moving to small apartment and renting house to help pay off …
Sell anyhome with mortgage if can buy another and pay-off in less time that said i dont like selling what you have as is hard to get another … everyones area is different and mine happens to be excellent for renting so it works for me maybe not for all …
I cant stand paying property taxes and mortgage with no return or income from the home ..
I love this site … you know sometimes i think there is no secret formula its so individual and has broad range of solutions dependent on many factors … one thing i know if you average person income you will never be free with a mortage unless very small … wish i had the above info in 1992 when i purchased my 1st home would have helped me alot …
Can tell you we are both in are 40’s and now have over $6700 a month in rental income with now debt plus our jobs incomes … we owe nothing is very nice to accumulate cash and have options … that said i never knew that options even good ones could cause one stress in decision making …
Everydecision once have money seems just as important as one you make when dont have money or property and are working to get there …
am taling way to much
sorry
Paid of our house in 19 months. Then in snowball fashion we Paid off a rental house, then another, then another, then another. I am down to the last two rental house mortgages and will have them paid off in 2 years.
I am blogging about the adventures at my PayOffMyRentals blog. These post and comments continue to fuel and inspire.
I have mine paid off and don’t owe anyone a dime. I would not have it any other way. Pay it off and change your life. Knowing your boss has no hold on you anymore and the fact that you can chose your own path is worth it! I will never go in debt again. I’m 49 and feel great!
Great story- encouraging to hear! My wife and I are 28 and just refinanced to a 15yr- throw in an extra payment here or there and we should have this thing paid for by 40. Excited about getting ahead and clearing away obstacles now so we can enjoy the fruits of our decisions later in life. It would be amazing to retire early and spend all this time with family.
I love stories like this! My wife and I bought our first house in March ’14 and we have already paid four years worth of mortgage payments! We are 26 & 27 years old and look forward to being mortgage-free by 35.
Enjoyed the article. Thank you for sharing. I’ve always been a worse case scenario kind of gal that likes a safer bet. Yes I could invest more and pay the minimum mortgage payment. But how would I feel if the market tanked again like 2008? For me, I decided to pay my house off as quickly as possible. My goal was no mortgage at 40. I met my goal. Yay! I have no debt. None.
My retirement account is on target and the 529 will more than cover all of my child’s 4 year college
education (dorm, tuition, meals). I had student loans so I don’t want that for her.
I know what it’s like to not enjoy your job that you spend most of your waking hours at putting up with people you don’t like. Once you are debt free and mortgage free with the kiddo taken care of, you can feel comfortable leaving. Work or don’t work. It’s your choice. I work part time temporary jobs now. I want more free time to read, sleep, travel, volunteer, etc. I can’t do this with a full time job with 2 weeks of annual vacation. Temp jobs allow me to say no. Maybe I don’t work for 2 months or maybe I only work 15 hours a week. It’s my choice. Having no debt gives you so many choices.
You can do it too. I wish everyone all the best!
I paid off my mortgage a few years ago, and I regret it; however, it may have started something….
Stay tuned for the end of my story. Sorry, I am not ready to finish it. I need two to three years before I can come here and actually write the end because paying off my mortgage may end in success or tragedy. I’ll come back…
I was looking for affirmation that I was doing the right thing and it would seem that I found it here in spades. Wife and I are on track to pay off our 465K home in 7.75 years (can you tell I’m a math geek?). We were doing the “normal†payments for 4.5 years until I got the bright idea to do a sample calculation of what our retirement would be like if we had no mortgage and it just blew my mind the opportunities it presented. So since that day, and after negotiating with the wife on exactly how much extra to through at it, we decided on a flat 10K/mth (including the “normal†mortgage)… we’re now over a year into it with occasional chunks thrown in for good measure, and with just 2.5 more years to go, I can almost smell the finish line… But I now find myself starting to sway in resolve (hence my trolling the web for vicarious conviction). Even with our recent refi into a SUPER low rate, it didn’t provide the lasting spark that I had hoped. As a math geek, I’m finding it hard to “leave money†on the table, as the investment gurus argue, and we’ve all heard of them. But as I’m reading more and more, I’m starting to be convinced of all the various intangible benefits to being debt free. The one that happen to catch my particular attention the most is no longer the fear of losing your job (not that I’m about to quite or anything). Not having a mortgage would go a long way towards reducing that stress. The other advice I concluded from my reading here is that I will no longer be suggesting we through our bonus money towards the mortgage for the next few years but instead use it on vacations. I’ve extracted from some of the posts here that it would have benefited them greatly had they done it. I think, like them, I’m getting burnt out because I’m not allowing myself to celebrate the little things, and 3 years is a long time to not vaca with the family, all the while you’re putting them on such a restrictive life “diet.†The way I see it, if we forego spending our bonus money on vacationing with the kids and other fun things the rest of the time until this is done we would only be about 2 months or so shorter. But the down side to not having some fun with this money is that we may just end up quitting out of frustration. And besides… we would most likely kill each other before then also!!
Totally get this post, it’s one of the greatest achievements in life to pay off the mortgage and be debt free. I’m into my 14th year owning a property, lived in the 3rd property for over 9 years and have managed to pay off £70,000+ and have around £50k to go. Got married 18 months ago so now have joint income so things can only get easier. Goal at 24 was to be mortgage free by 40, I’m 38 this year so may run over slightly but confident to achieve within 5 years. I would advise anyone to set goals like this and to stick with them long-term. It will give you piece of mind and mean you can enjoy a more luxurious life as you get older :)
Two more payments on the house! I look forward to knowing that the house is ours.