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There are so many opinions on whether or not you should pay off your mortgage early.
Some say that paying off your mortgage is a bad idea because you could make a lot more money in the stock market. With the bull market over the past decade, there’s a lot of truth to that.
And others appreciate the peace that comes with not owing anything to the bank each month. The benefits that come with that freedom are hard to deny as well.
So, what’s the right answer?
I’m not sure there is one. I think only YOU can answer decide what’s best for YOU.
In 2013, my wife and I decided to pay off our $200,000 mortgage in less than 5 years. It was an aggressive decision and one that required a lot of partnership and dedication. But we did it … together. And we’re so glad we did.
That was a personal choice and it was best for our family.
If paying off your mortgage sounds interesting to you, here are 10 compelling reasons to consider it.
1. Decreased Annual Living Expenses
According to the US Department of Labor in 2018, the largest expense in the typical American family’s household budget is their mortgage or rent. Imagine that being completely wiped from your annual expenses. What a weight off your shoulders!
That would leave you more money for fun, vacations, investing for the future, contributing to your kid’s college funds and so much more.
Since our mortgage and extra principal payments were around 35% of our living expenses, we are breathing MUCH easier with our mortgage gone.
2. Makes Saving for Retirement Easier
Before paying off our mortgage our annual expenses were around $75,000 per year. With that type of lifestyle, we would need to save around $1,875,000 to retire comfortably using the 4 percent rule.
By removing our mortgage from the equation, our annual expenses are now around $60,000 per year. In theory, this means we only need to save up $1,500,000 for our retirement to live our current comfortable lifestyle.
Now there are a lot of factors that can throw that convenient math problem off (inflation, lifestyle change, etc), but when all is said and done, it’s going to be easier for us to retire. $375,000 easier!
3. Increased Savings Rate
With no house payment, we’ve been able to save around 50% of our income. That is huge for us.
At the beginning of our marriage, we were living for today, spending what we wanted and we were happy … until we realized we were broke.
Having a large cushion of savings, built up retirement accounts and a development of income-producing assets will also make us feel happy … just in a different way.
4. Increased Net Worth
When you don’t have debt, you avoid the negative drain on your net worth. And without a mortgage, this is doubly true!
When we started our journey of financial betterment in 2010, we had a -$50,000 net worth. (Yes, that’s a negative symbol).
We owed A LOT more than we owned. I owed more on my home than it was worth, had $30,000 of student debt and I was spending more than I was earning. I even bought my wife’s engagement ring with my student loans!
9 years later, our net worth has grown to $850,000 through simple investing strategies, increasing our income and focused debt destruction. Without a mortgage, our net worth continued to soar.
(We track our net worth through a free service called Personal Capital).
5. Have More Fun
My wife loves to do design projects in our home. I love vacations. With more available cash flow, we’ve been able to enjoy life and reward ourselves more lately.
Nicole has been able to update our laundry room, buy new furniture guilt-free and we even got the big screen TV we always wanted. This home now feels like a palace and it’s ours!
We’ve traveled a lot more as well. Disney World, Cabo San Lucas, Los Angeles, Ft. Lauderdale and many trips to Northern Michigan have been some of our favorite destinations since paying off our mortgage.
While some of our trips were supported by credit card rewards, having the extra cash available has helped us travel without restriction. Getting out-of-town during our Michigan winters is now a must for this family.
6. Reduced Stress
I don’t know about you, but I really stressed out about the size of my mortgage. Having such a large payment each month made me feel worried.
“What if I lose my job and we’re not able to make the payments?!
“Or what if I get a new boss and he’s a complete jerk, but I can’t leave because of the mortgage?!”
These were real reoccurring thoughts I had. And I couldn’t just tell myself to calm down or not think about it. (Believe me, I tried. The Calm meditation app has become a good friend of mine lately!)
When our $1,300 (w/o taxes and insurance) payment was gone, my stress level decreased dramatically.
Sure … There are still other bills we have to pay for the rest of our lives, but none will ever be as large as our mortgage.
(FYI: We worked with LendingTree to secure on our 15-year mortgage. Having a shorter-term mortgage helped a lot because the principal payments were much higher each month).
7. Never Worry About Refinancing Your Mortgage
You know when the interest rates drop and all you hear is chatter about refinancing your mortgage? Well, when you don’t have a mortgage, you don’t even have to wrestle with the decision of if you should refinance your mortgage or not.
That is one less decision you have to make FOR THE REST OF YOUR LIFE!
There are major benefits to reducing the number of decisions you need to make in your day. You’ll be more productive, your mind will feel more clear and life can feel easier.
8. Ownership Pride
The fact that Nicole and I own our home outright fills me with so much pride. The peace of mind that comes with true homeownership is incredible.
I’ve even found myself standing on my front lawn staring at my house and saying, “That’s our house. We own all of it. My kids will always have a place to call home.”
Those statements are REALLY fun to say.
9. Design a New Lifestyle
I’ve had the chance to interview dozens of families on my podcast who have paid off their mortgage. One of the most impressive things I’ve learned about how mortgage freedom has changed things for them is with their overall lifestyle design.
Many have gone from working full-time jobs to just part-time jobs. Now that they don’t need as much money to live, they don’t want to work as much. How cool is that!?!
Others completely changed career paths altogether. It’s as if they now had the confidence and financial cushion to make bolder lifestyle decisions. That’s what mortgage freedom did for them.
10. Easier Path to Financial Independence
With a paid-off mortgage, you don’t have to save as much money to reach financial independence. Your expenses are now significantly lower.
For example, if your family spends $60,000 to live each year and then pays off your mortgage with a $1,000 payment per month, your new annual living expenses are only $48,000.
That means, you now only need to create $4,000 of passive income earnings to become financially independent.
How can you get there? Here are 3 of my favorite passive income-producing routes:
- Buy-and-hold rental real estate
- Investing in a taxable brokerage account
- Affiliate or advertising income through a blog
I’m not insinuating that people shouldn’t focus on passive income before they’re mortgage-free. In fact, I’d highly recommend it!
If you want to get into rental real estate, more power to you.
Have a small business idea that allows you to follow your passion and provide for your family? Go for it!
Nicole and I have had a lot of trial and error to get where we are today. The knowledge that we’ve gained from that trial and error has been priceless.
In the end, the plan to pay off our mortgage has worked out very well for our young family. Being mortgage-free at 35 was a family tree changing moment for us.
I hope you find a path that works well for your family too.
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Carpe Diem Quote
“The goal isn’t more money. The goal is living life on your terms.”Chris Brogan