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.
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.
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.
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?
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!