A mortgage is one of the largest expenses every month for most families. For many of us, the feeling of having a large debt for 30 years is unnerving. Of course, owning a home is preferable to renting in most situations, so having a mortgage is pretty much just a fact of life in our society.
A few years ago my wife, Crystal, and I decided to pay off our mortgage, and that decision obviously didn’t come without a lot of thought and discussion. While I have no regrets about paying off our mortgage and I’m very happy to be living mortgage free in my 30’s (now very late 30’s, unfortunately), there are some other factors to the topic that I’d like to cover in this article.
This article is a combination of our own experience as well as tips and advice if you are considering paying off your mortgage early.
Paying Off Our Mortgage in 4 Years: Living Mortgage Free
We got married in 2006 and bought our first home in 2007. It was a small condo in the Philadelphia suburbs (in New Jersey) that we bought for $159,000. We were both in entry level jobs and we only had enough for a small down payment, but we were thrilled to have our first home together.
→ Related reading: Renting vs. Buying a Home
While we were living there I quit my job and entered the world of self-employment working from home in internet marketing. Since I could work from anywhere, we decided to move a few hours away, where the cost of living was lower. We were able to buy a much larger new construction single-family home for $230,000, whereas if we had stayed in the Philly area that home would have probably cost us closer to $400,000 or more, depending on the location.
Unfortunately, while we were living in New Jersey the market crashed and the value of our condo dropped. We had to take a check of about $7,000 to the settlement to cover the loss. It wasn’t ideal, but we also felt like we were getting a good deal on the house that we were buying in south-central Pennsylvania.
When we bought the single-family home we were able to put a little bit more than 20% as a down payment. Crystal and I talked about paying extra on the mortgage payments each month, but we had a pretty good interest rate and it seemed like the smarter move was to invest the money and just accept the fact that we would have the mortgage for 30 years.
After living in the house for 4 years our financial situation had changed pretty significantly. During that time we had our first child, and Crystal left her job to stay at home with our daughter. I wound up selling one of my websites for a six-figure amount and we had to decide the best way to use the money.
A few years earlier we had made the decision to prioritize our retirement savings rather than trying to pay down the mortgage. By this time we felt like we were in a pretty good position with our retirement savings, and being only on one income we started to talk about paying off the mortgage.
Not only were we on one income, but being self-employed also brings some additional risk and fluctuation in income. And in the world of internet marketing where things can change so quickly, there’s always the risk of a sudden drop in income.
So we decided that even though mathematically it made more sense to invest the money, we felt that psychologically it would be better to pay off the mortgage. Getting rid of our largest monthly bill would reduce stress and improve our financial stability.
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So after 4 years of payments on a 30-year mortgage, we paid off the balance in one lump sum. I don’t remember what the amount was, but I think it was somewhere around $150,000.
Around the same time, we started to talk about our interest in moving to a larger property with more privacy. About 2 years after paying off the mortgage we got more serious about moving and we started looking at some houses.
All of the houses we looked at were significantly more expensive, so we had to decide if we would be taking out a mortgage or trying to pay cash and continue to live mortgage free. After living two years without mortgage payments we didn’t like the idea of going back to having a mortgage, so we made the decision to pay cash.
We wound up finding a great home that we love, and it’s on a beautiful property surrounded by nature.
→ Related reading: Considering Moving? Here are the Costs of Buying and Selling a House.
Does it Make Sense to Pay Off Your Mortgage Early?
Having a house with no mortgage payment sounds like a great thing, but it doesn’t come without sacrifice. If you prioritize paying off your mortgage you’ll have less money to invest and save for other things, like retirement. Mortgage interest rates are typically pretty low, and in most cases, the interest is tax deductible (check with your accountant). Depending on the timing of the market and economy, it’s not hard to think that you could earn more in interest by investing the money. And if you’re young, those investments will have more time to compound.
But there are other factors to consider aside from the bottom line financially. Things like stress and financial flexibility can also play big roles in the decision. Getting rid of that commitment to pay on a debt for 30 years can have a big impact on how you feel about your financial situation.
Being self-employed and having an income that fluctuates, I really like having monthly bills as low as possible. The stress of being self-employed and now having two young kids that I know I need to take care of for the next 15 – 20 years is enough. I still have that stress even without a mortgage, but if the bills were an extra $2,000 a month thanks to a mortgage, I’d have a lot more stress than I do now.
So maybe on paper it’s a better move to invest rather than paying off a mortgage, but in everyday life there are significant benefits that made the decision for us.
5 Realities of Paying Off a Mortgage: The Mortgage-Free Lifestyle
From my experience, here are some things you should consider if you are thinking about paying off or paying down your mortgage.
1. There Isn’t a Right or Wrong Choice
When you are trying to decide if you should work to pay off your mortgage early or invest that money instead, there really isn’t a right or wrong decision. Everyone’s situation is different. Your work/employment situation, family life, and mentality towards money and debt all play a role in the decision.
Crystal and I are happy to not have a mortgage, but I wouldn’t argue with anyone who told me it would have made more financial sense to invest that money instead. We did it for our own peace of mind and because we thought it was best for our family.
2. Paying Off the Mortgage Will Give You More Flexibility in Your Monthly Spending
This is kind of obvious, but it does have a big impact on your financial life without a mortgage. A mortgage on our current house would probably be about $2,000 per month if we didn’t put much down. Without the mortgage, assuming our income is the same, we can use that money for anything we choose. We also have flexibility if our income is reduced. The more you owe in bills each month the less flexibility you’ll have.
3. Property Taxes are Still an Issue
Although we no longer have a mortgage, we do have to pay between $8,000 – $9,000 each year in property and school taxes. Of course, if we had a mortgage we’d be paying that on top of the mortgage. But the point is, the house is still not “free” after the mortgage is paid. There are still plenty of expenses, and depending on where you live and the value of your property, taxes can be pretty significant.
For me, property taxes are worse than a mortgage payment. I can pay off a mortgage, but property taxes will be there year after year and there is nothing I can do about it.
When we were looking at houses I learned pretty quickly that one of the first things I needed to check before even considering a house was the property taxes. There were houses that we could afford to buy with cash that I would never touch because the property taxes were way too high.
The other issue is that high property taxes can make a house much harder to sell, so you could be stu