Is it Smart to Pay Off the Mortgage?

Most financial advisors will tell you not to pay off your mortgage. You are paying under 4% interest on the mortgage, plus it is tax deductible, which means the effective rate is even lower. Therefore, it makes a lot of sense to take the extra money you’d put toward the mortgage, and invest it instead. You’ll make 8% to 12% in index funds over the long term, so you pay 4%, you make 8% (at least), and you come out ahead. This is true, and it is why I continue to invest in my retirements funds while also paying down the mortgage. From a pure numbers standpoint, over the long term, barring any major catastrophe, it makes sense to invest rather than pay off the mortgage. So, what am I doing? Here are three reasons why I’m paying off my mortgage. For me, it goes beyond numbers.

1. Safe Hedge

From a financial planning standpoint I view the extra mortgage payments as the ultimate safe haven hedge against a stock market crash. Real, tangible land and a house I am living in, is a safe place to put money. Put it this way, would you refinance, go deeper into debt, and invest that money in the stock market? Maybe some would, but most would not. It is a risk. That risk is why I’m willing to take a potential hit on earnings in order to get out of debt. There are other drawbacks to viewing the house as an investment, such as liquidity and housing market instability, but it is still a reasonable idea to pay down the mortgage as a way to diversify your investments. I’m sacrificing some potential gain for financial security, and I’m willing to do that.

2. I Don’t Like Debt

I don’t like being in debt. I don’t like the concept. I don’t like the feeling that I don’t own my home. On paper, the bank owns my home, and in this case, paper is reality. This truly sunk in when we bought the property last year and were able to pay cash. We spent the night there for the first time last Spring and I was standing at the top of the hill, looking down into the woods, thinking, “It feels great to OWN land.”

3. Financial Flexibility

Lastly, I’m focused on paying off the mortgage because the perpetual monthly payments require that I have a steady income to pay them. I’m ready to reduce my workload as a first step toward retirement, and that means I’ll most likely be reducing my income. My investments are in tax deferred retirement accounts and I can’t, nor do I want to, pull that money out right now. So, I need to reduce my monthly expenses, and get out of debt. This will give me the freedom and flexibility to pursue new adventures and jobs, whether it is beekeeping, music, podcasting, orcharding, or teaching. Maybe all of the above. In short, I’ll be able to go wherever my interests lead, without having to worry about finances.

The modern concept of a home mortgage didn’t come about until the 1930s as a way to stimulate the economy after the Great Depression. I’ve seen the deed and the contract from the late 1800s when my Great-Great-Great-Great Grandfather bought some property in Missouri for $8,000 cash. That type of outright land ownership brings a sense of accomplishment in addition to security and peace of mind. That’s my goal.