5 Reasons I’m Obsessed With Paying Off My Mortgage

by | BiggerPockets.com

The truth is, paying off your mortgage isn’t the best investment. You can definitely earn higher returns on your money investing it into other assets, such as real estate or stocks. For me, that has been a huge battle in my mind. Do I pay off my house faster, or do I simply take the money that I would have paid extra on my property and invest it elsewhere?

Personally, I am obsessed with paying off the mortgage on my personal home. Why? Read on.

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5 Reasons I’m Obsessed With Paying Off My Mortgage

1. Because I long for no monthly payment.

I HATE payments. Every month, the bank wants their money. No one cares why the bill might not have been there on time. The bank wants their money, and if you don’t pay, you lose your house. Simple as that.

If my house was paid off, I wouldn’t have that payment to make. It would also lower my household expenses dramatically. With lower expenses, my overall passive income needed to cover my monthly expenses would also be lower. The money going towards the mortgage could now go directly towards investing into something else.

2. Because it would give me peace of mind.

I’m definitely a proponent of “good debt,” such as owning real estate or other assets.  For me, having debt on my personal house gives me real anxiety. My wife and I have finally found the house we love, where we want to settle with our family for a long time. I want to actually own it outright. I want to have the freedom of knowing I actually own the house, not the bank.

Many of my personal friends who are wealthy have their personal homes paid off. If things are difficult for a while, if income or business changes, your personal home (and you and your family’s life) will be less affected.

Related: Forget Everything You Know: 15-Year Mortgages Are Best for New & Intermediate Investors

For me no ROI can compare with the satisfaction of having that house paid off and owning it free and clear.

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3. Because of all that equity.

The house is paid off—now what? You can always put a HELOC on the property if you want access to the cash. Sure, you would be charged an interest rate against your line of credit, but you aren’t charged if you aren’t using it. With the HELOC, you could pay and hold a property while it is being renovated and refinanced. There are funds you could tap into if you really needed. But you don’t have any active debt against your property.

Again, many of my personal friends have used HELOCs to buy assets, reposition them (with relatively low cost of money), and then refinance them.

I am not suggesting you work hard to pay off your house and then immediately put a bunch of debt against it. However, you can now use the asset of your house smartly and conservatively for short-term periods to invest in a deal, buy a new rental, etc.

4. Because I want to have little to no personal debt.

This is a big one for me. I want to have little or no debt personally. We rarely carry a credit card balance. My wife and I are also focused on paying off our vehicles in the coming year. In our personal household, we want no debt. We plan to keep a modest budget even at a very nice level of lifestyle, and our passive income should cover more than our expenses.

Within my rental portfolio, I try to not be more leveraged than 65-70%, and as we grow it, I make sure to rebalance this with debt as well as carry a conservative amount of funds in reserve. Not only do we keep a reserve in cash for the business (our properties), but we carry 12 months of cash for the household as well.

5. Because past experience drives me.

By working on both of these fronts, we lessen the overall possibility of having a major issue in paying bills for our lifestyle and in paying for the home we’ve built as a family.

After going through bankruptcy in 2009, there hasn’t been a week or a day that has gone by that I haven’t thought of that experience. Let me tell you—bankruptcy is a living hell. It has fundamentally changed the way I look at our household debt, income, and overall finances.

Related: Are Extra Mortgage Payments Worth It? A Look at the Numbers

If we’d had more cash in the bank and not been so highly leveraged on our personal home, we likely could have made it through without losing everything. There were a lot more factors involved, but the point is clear. We couldn’t outlast the problem. And we failed. I know I never want to experience that again. Therefore, I have to make decisions that put myself and my family in a position that we don’t ever end up there again.

Final Thoughts

To reiterate, this is not a post about the rate of return on my money. The post is about my sanity and the stability of our family. If you are struggling with areas in your life financially, it’s time to look at what is happening and make fundamental changes.

I’m not saying you have to pay off your mortgage. But look at your overall debt picture. Do you have reserves to make it three months, six months, a year? Have you looked at your budget and created an emergency plan for living a lot less? How would you feel if you didn’t have to make that mortgage payment anymore and instead could invest it or save for your kids’ college?

We’re republishing this article to help out our newer readers.

Do you feel the need to pay off your mortgage faster? Have you decided to keep six or 12 months or savings in reserve? Why have you decided to do what you are doing?

Weigh in with a comment!

About Author

Nathan Brooks

Nathan Brooks is the co-founder and CEO of Bridge Turnkey Investments, a Kansas City-based company renovating and selling more than 100 turnkey properties per year. With over a decade of experience in real estate, Nathan is a seasoned investor with a large personal portfolio and a growing business portfolio. Just last year, through Bridge Turnkey Investments, he helped investors add over $12 million in value to their real estate portfolios. Nathan regularly produces educational content to fuel his passion for helping other people learn about and find success in real estate investing. He has been featured regularly on industry podcasts such as the BiggerPockets Podcast, Active Duty Passive Income Podcast, Freedom Real Estate Investing Podcast, Fearless Pursuit of Freedom Podcast, Titanium Vault, The Real Estate Investing Podcast, The Best Real Estate Investing Advice Ever Show, the Good Success Podcast, FlipNerd, Wholesaling Inc., The Real Estate Investing Profits Master Series, Flipping Junkie Podcast, Flip Empire podcast, Think Realty Radio, and more. He is a sought-after speaker and writer and can be found on stage regularly at events across the country.


  1. Frank Boet

    I agree with you 100%. I have been making extra principal payments on my mortgage and God willing, we will pay off our mortgage in 2 years. We also got a HELOC 2 years and we were able to buy a rental condo. We are now in the process of refinancing it. Rinse and repeat.

  2. Tracey Geary

    I think it can depend on where you live. Here in NJ, having a paid off house means having A LOT of money tied up. I’m ok with having a good cash reserve for down times (like when I lost my job two years ago and got thru without a scratch on my credit) and having a mortgage but no other debt. I’d rather buy another property than tie up that much money, HELOC or no. If I moved to a less expensive place, I would love to pay cash.

    • Nathan Brooks

      Hi Tracey … I totally hear you on this. I remember when I was doing mortgages for a short time and saw the taxes and cost on someones home on the East coast I about fell on the floor. The issue for me is, does the cost of the home relative to the market really matter? Because, you could still pay that house off … and put the HELOC on the property and have the use of those funds to invest / or for a problem if you needed it.

      Either way, I hear you. In the higher priced markets its even harder to find a home that you like and can afford, let alone pay if off early. Thanks for reading and sharing!

  3. Ryan Schroeder

    For a $200,000 mortgage over 30 years at 5% one will pay $186,511.57 in interest payments plus the $200,000 in principal. The principal and interest each month is $1,073.64 (plus more if you need mortgage insurance plus more if you escrow your taxes as lenders over escrow) and of course insurance which one would pay either way. We prefer the security of knowing that regardless of what happens (job loss or whatever) nobody can take the house. Also, in this market a 5% return isn’t a bad return (which is essentially what you are getting if you pay cash by avoiding paying somebody the interest). AND its a secure investment, at least in our market. When we bought our current house interest rates were at 8% and for our first homes interest rates were at 13% making paying off a house early an even greater advantage than at present.

    It’s not a point of the article but an additional item worth discussing is how much house one buys. In our case we have always lived on just one income and the other income went to investments (401’s or investment property or whatever) so our current house is a whole lot less expensive than the industry would have suggested we should or could purchase. Buying up to our max mortgage ability would have been just plain irresponsible.

    Good topic and article. Thanks much

    • Nathan Brooks

      Ryan… I was thinking about covering the financial details in another topic, so this is timely and AWESOME to bring up. I love the thinking on return of the cash … but also even more importantly that you simply own the home.

      The second part of this being the income, and amount you are investing versus spending. This is such a massive idea, and point. I’d love to hear more how you have structured that, how long you have been working on it, and what the results have been. I LOVE it … thank you Ryan, for reading and being a part of the conversation.

  4. Melvin Plummer

    I paid off my mortgage 4 months ago and I make approximately $900 per month by doing so. In June of 2018, my mortgage balance was $86,000 on a $600,000 home. I’ve said it before and I will say it again, I think credit is the best privilege this country offers its citizens. Amazing things can be accomplished by using credit wisely.

    In July of 2018 I was prepared to send a check for $86,000 to pay off my mortgage in its entirety. As the time approached for me to write the check, I started having second thoughts.
    I have several credit cards with very high lines of credit and zero balances. One of these credit cards has a $71,000 credit line. I started thinking- what if I can use this $71,000 credit line to pay off my mortgage. I know that sounds crazy but just let me finish the story. Since the mortgage payoff is $86,000 and the credit card only has a credit line of $71,000, I’m short $15,000. I picked up the phone, called the bank and asked them did they offer any credit cards that have a $0 balance transfer fee and no interest payments for 18 months. They told me yes, but the term would not be 18 months, it would be for 16 months.
    I immediately applied for the credit card and was approved over the phone for $16,000. Since both credit cards were held by the same bank they allowed me to transfer $70,000 from the original card to the new card at 0% interest with no balance transfer fee. The bank asked me what I was going to do with the money and I told them that I was going to pay off my mortgage. The bank then said they would send a check directly to my mortgage company and pay it off on my behalf. I agreed!
    My principal and interest payments on my mortgage was $1,500 per month. The monthly payment on the credit card is 1% of the balance owed. The principal balance today is $75,000. The minimum payment due is $750.00. The payment decreases as the principal balance decreases. I’m saving $750 per month. I am also earning $150 per month interest on the money that I was going to use to pay off the mortgage in the first place. I will keep that money in a separate account until this transaction is paid in full.
    So at this point, I’m making $900 per month with no tenants and no risk. It’s just beautiful passive income. I also have clear title to my house!

      • Melvin Plummer

        Most banks don’t start you off with high lines of credit. I was able to build my credit lines by flipping houses. Every time I purchased a house, I paid cash for the house. I would use the credit cards to pay for all of the materials needed to complete the flip. The cost of the materials would range from $10,000 to $40,000. I would only charge the materials on a credit card that offered cash back for each purchase. For example, if the materials cost $40,000 and the card paid 1.5% in cash back rewards. I would make approximately $600 simply by using the credit card. Since I had to buy the materials anyway, I had a choice to either pay cash for materials or put them on the credit card. Obviously, the only way this would work, would be to pay off the credit card in full once the bill is issued or when the property is refinanced. For the past 15 years, I have never used a credit card for any reason other than to make a profit. That has been so much fun for me and I really enjoy using the credit cards. But I have to caution you that doing it this way is very risky and you want to make sure that you stay on the winning side. In my opinion, the best way to do that is to always have a decent cash reserve.

        • Nathan Brooks

          This makes a ton of sense. You also can pay them say weekly instead of monthly. Sometimes I’ve had luck getting the credit limit raised when I’ve have them paid off this way.

      • Nathan Brooks

        This is such an awesome idea. There is also the HELOC strategy where you can do something similar. That is what we plan to do (and I can write on it in more detail). Basically use your HELOC as your checking account, and pay a huge chunk of your house down with it… Congrats Melvin on working through that, so awesome!

        • James Palassis

          We used the “paycheck parking” method to pay off. It does make a difference if you don’t go crazy with it. We did it in $10k increments. Take $10k out on the HELOC and put directly on the principal of the mortgage. Pay that off, and repeat. The motivator is seeing how much of the regular mortgage payment starts going toward principal after you take a $10k chunk out of it. Great stuff, and great article.

        • Bryan Konopacki

          Can you explain a little more about how your structured that? Apply the chunk just towards principle? I’m wondering how that would personally work, considering the other monthly expenses and the fact that our HELOC interest rate is high than our mortgage. Please elaborate. Thanks!

      • Melvin Plummer

        I guess I am lucky enough to have several credit cards with very high lines of credit. So for me, at the end of the 16 month term, I will do a balance transfer to another card in the exact same way. Or as I mentioned earlier, I will pay the balance off in full.

      • Melvin Plummer

        It’s just a fancy balance transfer. Let’s say you have three credit cards. Each credit card has a balance of $2,000. You also have one credit card with a $10,000 line of credit with a 0 balance. You can do a balance transfer by transferring the $6,000 from the 3 credit cards to the $10,000 line of credit.
        In a similar manner let’s say you owe $15,000 on your mortgage. You also have a credit card with a $20,000 line of credit. You can do a balance transfer to pay off the $15,000 mortgage. This only makes sense if your bank will allow you to do the transfer for zero transfer fee and 0 interest and that you can pay off the balance, in full, within the allotted no interest rate term.

      • Melvin Plummer

        You have to remember that banks don’t pay merchant fees, they charge merchant fees. A bank can write a check anytime they wish, free of charge. If you use a credit card to do a balance transfer, the banks generally do that with an electronic funds transfer. However, if you use a credit card to pay off a mortgage, the banks generally issue a check to the mortgage holder

  5. Bryan Konopacki

    Nathan, the timing of this post couldn’t be better. A few weeks ago I commented about this topic on the related: “Are Extra Mortgage Payments Worth It? A Look at the Numbers” post and did not receive any feedback. Today as you were publishing this topic, I was trying to re-locate my comment to see if anyone ever replied but was unsuccessful at remembering the title of the past post. So ill just re-share it here instead because I found it thanks to your topic!

    My wife and I recently decided to put off purchasing our first investment property to focus our energy instead on paying down the mortgage on our first primary residence. When we closed on our primary 2.5 years ago, we put over 50% down and our loan was only for $100K. We waived escrow, and our monthly payments were $463.12 until we recently decided to add $1,600 to that for a total of $2,063.12 a month to the mortgage which we estimate to pay off about Q3 of 2022 in order to secure our home where we live with our two kids. After the mortgage payment, we still save approximately $1,500 a month which we’re saving for a down payment of that first investment.
    We too carry little to no credit card debt; we only spend what we know can be paid with our next paycheck. Your topic was a great reassurance that our decision wasn’t as crazy as even we reconsidered it a couple times since making the changes, but we too have been through a bankruptcy and I’ve become obsessed with our debt management as well. We were fortunate enough to not have been established during the 2008 crisis. But we’ve worked hard to bounce our credit back to over 700 to ensure that our growing family does not ever have to suffer financially the way so many have in and after 2008.
    Since our down payment was over 50%, we secured a HELOC as well, as a safety net, the very first month we were eligible (post-bankruptcy).
    I also need to comment how invaluable it has been for us with young children to utilize a Health Savings Account (HSA). I didn’t know this when we opened it, but we recently learned how to invest HSA funds long term after taking the deduction for the contributions.
    Our debt, credit, and income (and retirement savings) has become our obsession too in our quest to build wealth as flawlessly as possible going forward. Last month I even caught a $5,800 mistake on our credit report and was victorious with having it successfully deleted.

    Any opinions on the ROI of that strategy (3.75% on mortgage) vs. utilization of the liquid elsewhere? Were not really seeing anything attractive (safer) with a larger interest rate. Thanks in advance! (this part was from the previous post)

    • Nathan Brooks

      Bryan. CRUSHING IT. I love this post. It’s all about the focus, and that’s where you get the result. Plus you get to see the win as you continue paying down on that mortgage and really get it hammered out. I commend you getting after it and really truly seeing that massive result!!

  6. Joe C.

    Nathan, I like how you think. Just paid my mortgage off last month. Oh, what a feeling. The best part is my last installment came from my rental cashflow account. I started investing in 2014 and now have 4 nice cash flowing properties. I only wish I hadn’t waited so long to get started.

  7. Kealii Murray


    Thanks for sharing your thoughts! I have the exact same mindset as you, but i’ll add one thing that is the deciding factor for me to pay off my mortgage faster…..the interest savings over the life of the loan is HUGE!! Without diving to much into numbers I’ll just say saving over 50k in interest is a very nice ROI if you ask me.

    • Byrne McKenna

      That is huge! FREEDOM to take risks. I paid off my house in 2004 after hearing “no one ever retired on a big mortgage.” It changed my life in ways I could not have understood at the time. Your financial confidence can go through the roof once you realize that no matter what else happens, you have a roof over your family’s head for the remainder of your life. That extends to big career risks – you are not tied to job security in addition to the greater investment risks you can now afford. I will credit that one event for retiring at age 48.

  8. Jacob Stoecker

    When it comes to being able to access your equity for a HELOC does it make a difference if your property is owned by an LLC or you personally? Just trying to think if that cash could be used for investing in other properties or even taken out to be spent personally.

    • Bryan Konopacki

      “Most lenders require that the property serve as your primary residence. While some financial institutions offer second home equity loans, the requirements are often stricter, and the loan comes with less favorable rates and terms.”


      • Nathan Brooks

        It greatly depends if its a HELOC on your primary, or if its a commerical LOC on a group of properties, doesn’t matter. You just would want to look at the cost of the LOC versus the other opportunities. Because the HELOC reconciles daily this is a huge advantage if you use it to pay down the mortgage (which calculates monthly.)

        • Bryan Konopacki

          Nathan, why is that exactly? Can you explain the math why the daily reconciliation of the HELOC is advantageous against the monthly acrual of the mortgage?

  9. Nathan G.

    The important lesson is that every investor needs to evaluate their own situation and make an informed decision based on their current situation and their goals. Too many people think real estate investing is a one-size-fits-all scenario and it leads to trouble. Thanks for sharing!

    • Nathan Brooks

      YES NATHAN. This is so true. I am actually presenting on this tonight at our local REIA meeting. Set the goal. Be clear on what it means. What are the steps to get there. It’s all true … thank you for being a part of the conversation!

  10. Jim Burrows

    I completely agree and appreciate your thought process on this. While I understand that a higher ROI is available elsewhere, safety and security are my number 1 considerations after BK (like you) and a couple foreclosures. Going through that pain really affects the thought process on what is an acceptable risk/reward ratio. I would do the same thing as you, lock in that safety / security (peace of mind) and then go after some moderate leveraged deals – 50%-75% LTV deals with strong ROI. I have vowed never to let myself get over-leveraged again. I was $1MM + in debt at the peak of the financial crisis and have hit rock bottom. Now on the rebound with ample cash, ready for the next fire sale… Great article, thanks for sharing

    • Nathan Brooks

      Thank you Jim. We were there as well … and definitely don’t want to experience that again. Having a clear buy box of what you invest in also helps with this. The debt by itself doesn’t tell the story, but like you said … lower leveraged deals gives you room to move or sell a little cheaper than expected. Thank you for joining the conversation!

  11. Jose G. Abreu

    For me, it has always been reasons 2 and 4. Most of the articles I’ve read advise to pay as little as possible, owing as much as possible to use the money to invest elsewhere, and I’ve always felt a little misunderstood, and that I’m going against the expert advice on that subject. So, glad to see this side of things and grounded on good reasoning.

  12. Clark Pope

    I like the idea here, but are there any risks along the way? For example, if you do get yourself into trouble financially (on your way to paying your house off) and the bank forecloses on your house, how much do you lose? Everything you put into it? Do you get at least the crumbs from when the dust settles and the bank has satisfied its lien? Let’s say you have a house worth $500K. You owe the bank $250K (outstanding principle). If they foreclose and sell for dirt, say $350K – do they pocket all the change or do they give you what’s leftover from foreclosure, essentially $100K minus all their fees, etc.? Naturally, you’ve still lost about $150K in equity / profit based on my example.

      • lana aks

        The best time to open heloc is always today – while you have a job or an income stream. Processing takes almost a month. Fees vary, but you can always shop around to find a bank that covers your closing costs, so you pay nothing until you take out some funds (the interest rate is about the same as the prime rate).

        • Nathan Brooks

          Agreed. You can get the HELOC and always use it at a later time. That’s exactly what we have done. We don’t always use it but its there to buy an off market house, or fund a deal, or whatever short term wise.

    • Nathan Brooks

      I like it Alicia. And then you can always go after the rental properties once you have your house paid down a little further. You could also find ways to buy rentals with OPM (other peoples money) and then still do both at the same time. I LIKE THAT!

  13. John Douglas

    I will give my slightly contrarian opinion. I agree with paying the mortgage off early, but I would rather save the money up in an account that provides an ROI and then, once I have saved the payoff amount in that account, pay it off in one shot. The reason being, if you make large extra payments every month then that money is gone. If you suddenly lose your job the bank wont let you skip your payments even if you have made extra payments in the past. So you could lose your house and all the extra equity you put into it. You also wont be able to get a HELOC if you lose your job. You will basically have to sell the house to unlock that equity. If you lost your job but had saved the money in a regular taxable account you could draw mortgage payments from that account for months or even years while looking for a new job. This way seems less risky to me.

    • Nathan Brooks

      John, the principal makes sense. I should say, people would want to have a reserve regardless … be able to have say 6-12 months of their income set aside. If they don’t have that, it would need to be something worked on prior to paying down the mortgage. I don’t mind paying in chunks or paying monthly, as long as you have worked out the goal and it’s clear.

  14. Chris P.

    Long time reader, first time poster!
    We use many of the budgeting techniques listed in the community comments, one salary for personnel expenses, one for investing, using rental income to fund the next however where we have done it differently and where I’d love some feedback is we have focused on paying off our buy and hold rentals over paying off our primary residence.
    We had our ideas on why we did it this way over paying off the primary residence, freedom was a big one! Anyways any input would be great, as my position has been known to evolve based on new facts.

    • Nathan Brooks

      Hi Chris – I don’t think its necessarily a “bad Idea” to do it that way. For me, I always thought about the household … and specifically my HOME that I live in, to be the first priority. Either way, I’d still have my home that I lived in even if there was an issue with my rentals. I could sell off one or two houses, and still have my personal residence. That’s my thinking anyway.

  15. Jeff B.

    When I moved into the my current home I told my wife that I would only agree to this move if I could have a 15 year note. We did and just about 6 months ago I paid it off. I tend to believe that the 15 year note is better due to the amount of overall cost vs a 30 year. The cash flow argument is solid, but only for investment properties. Most people will not take the difference in the lower 30 year payments and invest? Life gets in the way.
    I have to say that the financial benefits have been wonderful but the intrinsic value is even better. I related to nearly all of the items that were listed in this article. I live basically debt free and it is a great feeling. Good article and always an issue up for debate.

  16. Daniel Kern

    Great AND Timely post… I also posted on a discussion thread my battles with how to use the built up equity in one of our investment properties…
    We have an investment property at about ~55% Equity position (value ~$165k, 89k loan balance) that I want to either cash out refinance or take out a HELOC. My goal is to pay off a small loan used to buy this investment property (BRRRR style) and use the rest of the funds as a down payment for the next property. Whats the best option here to continue growing while paying off debts other than the new debt the refi would incur? Cash out refi or HELOC? I do not have the next property lined up yet or UC so I have the time if one strategy is better than another, never used a HELOC before so not as familiar with the vehicle, but I know the closing costs on the refi will be significantly higher than the HELOC.

    • Nathan Brooks

      You could definitely put that HELOC in place now and then just know you are ready to move on the next property when it comes up. You don’t HAVE to use those funds. Just have them ready to rock, and then you are in a great position to buy (and not pressed) when you find it. Great problem to have Daniel, like it.

  17. Melvin Plummer

    When I first obtained the mortgage on my personal home, I went to the bank and met with my mortgage banker. I informed him that I wanted to pay my loan in advance for 6 months. So I paid January, February, March, April, May and June in full. Although my mortgage was paid up 6 months in advance, I continued to make my normal monthly payments. After about six or seven years, my mortgage was paid ahead by 12 months. That was the maximum number of months that my particular bank would allow me to pay ahead on the mortgage. That was fine with me. So in the event that I became unemployed for any reason, I would not have no monthly mortgage payments for a full year. That would give me plenty of time to find employment or generate other passive income.

    Since my credit is so important to me, if I did have a problem and could not generate monthly income, I would move and rent out my home until I got back on my feet. If that did not work, I would list my house for 5 to 10% below market value and do a quick sale.

    When the tide turns, I knew that if I maintained my credit, I would always be able to buy another house.

  18. Sebastien Hitier

    There is no mention of interest rate?

    Debt is enhancing your income if you can invest and at a higher rate of return, so you need to maximize debt subject to your risk tolerance.

    If investments have a lower expected return than debt, no investment should be made and debt should be repaid.

    As the mortgage has the lowest interest and its interest is tax-deductible, from a purely financial standpoint, this is the last debt you should repay unless you are unable or unwilling to invest.

    • Nathan Brooks

      I did mention I wasn’t looking at the specific ROI of my payments on my property. My ROI was my sanity. There is also the interest you aren’t paying on the length of that mortgage. Also, there was some thought on the deductions of interest… BUT, if you are also buying other properties for investments at the same time you would have the deductions (and likely far more if you are buying more properties) with those properties anyway. That’s my personal take on it anyway.

    • Bryan Konopacki

      I agree with your post until the last paragraph…or unless the mortgage is your highest interest debt, such as it is with us. I’d rather take the security of paydown the 30 yr loan because 4% over 30 years is more than 1.5xs the principle. Paying off is 4 years instead will save me…idk but we’ll pay less than 10K in interest instead of over $110k in interest alone. Then invest with that freed-up cash flow. Honestly, I think ones personally situation can rally be the driver of the strategy. We have kids and their security is what’s the main force behind our decision. Maybe someone retired or without kids has differing motivators.

  19. Melvin Plummer

    I like the way you mention the word, ” sanity.”
    When you have sanity, your life is in balance. Once you lose that balance, you can fall flat on your face at any given time. There was a time when I made the mistake of buying 5 houses and obtaining individual balloon mortgages on each house using the same bank. I should have used multiple lending institutions for balloon notes. At the time, I had a portfolio of 17 single family houses and one duplex.
    30 days before the balloon payments were due in full, the bank sent me a certified letter saying that they were not going to refinance my loans and that I needed to find another lender in that 30 day period. Even though I never missed a payment nor was I ever late with a payment, that didn’t matter to the bank. They just told me that they were reducing their risk exposure in the real estate market. Although, I was able to work everything out, that bank almost sent me into bankruptcy.
    That bank taught me a lesson about who has the power over my financial life, is it the bank or is it me?
    Now, I have the power, that’s why I paid off my mortgage on my personal residence. Although it’s only been 4 months since I paid it off, it is the greatest feeling that I’ve ever had in my investment career. I didn’t learn that from Dave Ramsey, I learned that from life.

  20. Rob Cook

    Debt is debt. And few mortgages are non-recourse. So, defaulting on rental mortgages can result in losing your paid off, residence (aside from Homestead exemptions, etc. as in some states and Bankruptcy code).

    So, a feeling of “sanity” having your residence paid off, could be ephemeral.

    I think the proper way to look at all of this, and your goals as indicated, is to be OVERALL financially secure, not just pockets, such as a paid off residence and perhaps dozens of rental property mortgages.

    When you prepay on a mortgage, it is the same as investing at the face rate of the note. Ignoring income tax considerations, etc., everything else being equal (which it never is!) one should retire the highest cost debt, first.

    However, sometimes, other considerations such as the minimum monthly payment on an amortized note, such as a mortgage loan or an automobile loan, may influence which debt to retire first. You might have a car loan with a monthly payment of $650, on a balance of $15K. And a rental property mortgage note with a monthly payment of $800 with a balance of $75K. For the GOAL of reducing your monthly debt burden, such as reducing your Debt to Income ratio for a loan application, paying $15K on the auto loan would eliminate $650 a month in debt service, where paying the same amount towards the mortgage note would have NO affect on your monthly payment burden. Get the point? WHAT are your goals, and situation? Sometimes the interest rate is NOT the most important consideration relevant to your own goals, etc.

    So focusing on paying off your residential mortgage loan, while seeming to put you in a more secure, stable position, may not be the best move to make – again, all depending on your specific situation and goals.

    As Nathan G mentioned above, one-size-does-NOT fit all in real estate financing or investing.

    • Todd Mitten

      Luv this, Rob. I agree with your example.

      You’ve hit on a concept that Garrett Gunderson calls the “Cash Flow Index” (CFI) of a loan. When you take the loan balance remaining and you divide it by the monthly payment, you come up with a number (CFI number). If that number is less than 50, it’s a less than efficient loan and one you should think about paying off quickly to improve cash flow. If the number is between 50-100, it’s an okay loan, but probably next on the list to consider paying off if you don’t have any loans below 50 CFI. Any loan over 100 CFI is well structured, and there isn’t much rush to pay it off.

      So, in your example(s) here, the car loan for $15,000 divided by the monthly payment of $650 gives us a CFI number around 23. This is not an efficient loan (from a cash flow perspective) and should be paid off sooner than later. With the mortgage of $75,000 divided by the monthly payment of $800, we get a CFI number around 94. This is an efficient loan, and of the two, the last one that should be considered for payoff. After focusing to pay off the car, the extra $650/month cash flow can then be applied that towards the mortgage.

      And as Robert Kiyosaki has taught us, it really is about cash flow. That’s what keeps us afloat during the tough times. Positive cash flow.

      I’m thankful that Nathan posted this article as it’s also something I’m planning to work on now myself. My wife and I are debt free (except for our personal residence), have our reserves in place, and our jobs are as ‘secure’ as any job can be. We are now on an accelerated payoff plan to take the excess cash flow from a loan we have recently paid off, and apply that towards our personal mortgage. Our mortgage is still a wonderfully financed loan, has a fantastic CFI, but it’s also the last man standing on our path to freedom. It’s only because we are at this point that we are now accelerating our payoff of our mortgage.

      Great post, Nathan.

  21. forrest holden

    A lot of good posts here. I’ve been trying to determine if I should up my leverage while money is cheap or on the other side, sell one of my properties. I’m in the military and I’m going to Japan for 3 years. Sanity and peace of mind have to be part of my strategy. All things said, I’m not sure I can do a heloc on a VA loan and Texas lending is tricky. I may end up with one cash out refi and another refi for better rates and terms. I suppose I could sell one equity heavy rental to pay off another in full, but I’ve already paid the cost to buy and don’t want to pay the cost to sell.

  22. Lou LaMedica

    Great post Nathan and timely! One thing that doesn’t get enough credit in investing is the “sleep at night” factor. My wife and I were just speaking about should we pay off our 15-year low-interest rate mortgage as quickly as possible or put our money elsewhere. I keep thinking about the day when we own our residence outright and that no matter what happens, our family will have a place to sleep at night. As a business owner, where some years are great and some can be lean, that assurance is very powerful.

  23. Joseph Moore Jr

    I also do not like personal debt. My home that I currently live in is paid off and it is in a low tax area. At the age of 45 I decided to build credit after a lifetime of being a cash only guy. Took me about 2 years to build some ok credit . My last 2 investments I bought on credit. One was a 0% short term loan and the other I put on a 0% intro credit card. Both were bought around Oct 2017 and I already paid off one and down to last bit on the card. Still trying to get comfortable with debt because my brain keeps saying it is bad. Thing is I am trying to learn so it is not taking me 2 + years to finish a house because waiting on cash. A personal residence in my opinion should never have a mortgage on it.

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