Paying off the Mortgage Part 1

In this two part series, I go through the steps my wife and I took to pay off our mortgage. Spoiler alert, there was no hack or secret here. It was all hard work, saving, and investing. These two posts will focus on the thought process we went through. 

I found in my research that there are a lot of strong opinions on whether or not you should pay off your mortgage, and a lot of these opinions are rooted in sound logic. Instead of rehashing other peoples ideas, I get right down to business on what we did. Fair warning though, our approach to paying off the mortgage isn’t universal advice for everyone, it’s just what we did with our circumstances. My intent is to provide some basis for you to make your own informed decision or inspire you to create your own plan based on your circumstances. 

Stance on Debt

I should be clear up front on my stance on debt.  I don’t like it. I realize there are many very successful people who have made millions and billions by knowing how to leverage debt skillfully and profitably. More power to these people, I’m not one of them. I have a more simple way of thinking that I’d feel a lot better, more free without any debt whatsoever.

The Decision

Paying off the mortgage as always been on my mind as a step towards financial freedom. My wife and I are in our early 40’s and close to hitting what I would consider financial independence.  In early 2017, we were holding on to lots of cash and wanted to do something with it. I considered just allocating it towards existing investments like Vanguard index funds, seeking out new investments (real estate, oil, precious metals, cattle), or paying down or off my only remaining debt, the mortgage. We thought long and hard about these different options, including doing nothing at all and keeping the cash, however we kept coming back to the mortgage.  I’ll admit, my distaste for debt heavily biased my decision here.

We were also determined to pay off the mortgage with only cash. The thought of selling investments did not sit well, nor did suspending allocations (i.e. 401k deposits). In our minds it had to be done with existing cash.

Once we had the idea that the mortgage was going to get paid off, we developed some basic rules:

• Cash – only use money from cash accounts (savings, checking, money market).
• Investments – do not sell any investments
• Investment contributions – do not stop or reduce contributions to any existing investments.
• Timeframe – pay off the balance in 4 months or less (more on this later).

Weighing Pros and Cons

My general dislike of debt was the main reason why I was attracted to paying off the mortgage. But I also wrote down some pros and cons:

The pros of paying off the mortgage:

• Completely debt free – our mortgage was our last remaining piece of debt
• Savings – increase our savings rate with a paid off mortgage
• Employment – We’re both still employed and can earn back the money used to pay off the mortgage
• Reduced overhead expenses – by lowering our annual expenses, it means we can sustain ourselves longer on less money
• Greater sense of freedom – this may be a general sense and feel thing, but having less stress because we have no debt is a major plus in our lives.

Lastly, our financial situation allowed it:

• We have no other debt and no plans to generate any more debt anytime soon. 
• We have the ability to use only cash and not sell investments or stop contributions.
• We are gainfully employed and making decent money, so we can recoup the cash

Here are the cons we weighed: 

• Emergencies – what if we allocated the bulk of our cash and all of a sudden needed it for something unforeseen?
• Long-term mistake – this is where a lot of ‘keep your mortgage’ proponents anchor their argument. That putting money towards a mortgage hurts you financially because you’re missing out on all the gains you would have had by investing that money instead. 
• Taxes – no longer take advantage of deducting mortgage interest.
• Still have to pay some things – we still have to pay taxes and mortgage insurance even though we eliminated the principal and interest part of our monthly mortgage payment.

In terms of emergencies, I thought this was just our fears getting the better of us. We take pretty good care of ourselves, and if we did need money, we could always sell investments. That was a risk we were willing to take. 

Regarding the long-term mistake of putting money towards long-term debt rather than investments, that all depends on whether or not you invest properly to begin with. However, I think this is a real valid reason many folks should not pay off their mortgage.  If you have to sell investments, or stop/suspend allocating cash toward investments, then it may be too soon. At least for us, we didn’t want to do that.

In the next part of this post, I’ll discuss my thoughts on timing. How long should you take to pay off the mortgage and why?