For the most part, the classic American dream includes home ownership. A comfortable job, a vacation once a year, and a place to call home. What’s funny is that the vast majority of us are relying on 30-year mortgages to “own” our homes. So, in some sense, we really aren’t owning them – we just feel like we are. And it’s so commonplace to have a mortgage that nobody really second-guesses it.
To be fair, there are some benefits of having a mortgage. But does that really mean that it’s a good idea for everyone? Should it be the norm? I’m not convinced. Here are some of the biggest reasons I think it’s a good idea to pay off your mortgage (and why we’re doing it):
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The total amount you pay in interest may be double, or even triple, the amount of the actual cost of the house.
That’s a lot of money. Even for a small house, you’re talking about hundreds of thousands of dollars that you are paying the bank just to borrow that money. Think about everything else you could do with that. In fact, it’s probably more money than the average American retires with.
You open up a huge amount of discretionary money each month.
A few months ago, I was trying really hard to cut as many of our expenses as I could. I started with the biggest ones and worked my way down, but at first I was totally disregarding the mortgage (I was just assuming it would always be there). Then it occurred to me – what if we didn’t have to pay that mammoth bill? I mean, it is bigger than all of our others added up together! Without that monthly payment, we would have a huge amount of extra discretionary money each month that could go towards anything we wanted – retirement, college, vacations, anything.
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You open up the opportunity to take out another mortgage for an investment property.
This is a really big deal for me and my husband (and probably should be for a lot of others). It’s so much easier than most people realize to invest in real estate and it’s a great way to diversify your long-term investments. I know it seems crazy to pay off one mortgage just to take out another, but if you invest in a rental property then your tenants are paying your mortgage – so the interest doesn’t matter as much. It’s as if your tenants are paying you and the bank.
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You open up the opportunity to take out another mortgage for a bigger home.
Now this doesn’t mean that if you pay off your mortgage you should get a bigger home. What I mean is that if you need a bigger home, you should first try to pay off your current mortgage. Then, you will have way more to put towards a down payment and will be able to get a smaller mortgage payment on a larger home (and hopefully pay that one off quicker than the first).
You increase your security and lower your risk.
For me, this is one of the most compelling reasons. I left my job to stay home with my son, so now a lot of weight is on my husband to bring home the bacon. Luckily he loves his job right now, but what happens if that changes? Or what if the company goes belly up? If the mortgage is paid off, two things happen – 1. we have way less expenses each month to come up with, and 2. no one can take our home from us if we don’t pay the bills. And that’s if the worst-case-scenario happens. There’s also just the possibility that he’ll want to back off from his job in which case having no mortgage payment gives us way more flexibility.
FAFSA does not recognize your house as liquid.
This is a really big deal that most people don’t realize. If you plan on utilizing financial aid for your kids to pay for college, then you’re better off paying off your mortgage because FAFSA doesn’t take into account home equity. This means that if you owe $200k on your mortgage and have $200k in other accounts, FAFSA recognizes you as having $200k in assets. If instead you paid off your mortgage and had no money in other accounts, FAFSA recognizes you as having nothing. This doesn’t mean you should put your kids’ college money towards your mortgage, but it is something to consider when you’re weighing your priorities and options.
You give yourself peace of mind.
This is the absolute #1 reason for me and should be for everyone else (though I realize it seems corny). Stress affects our health, our relationships, and pretty much everything else and we all know that money issues are one of the top causes of stress. Getting rid of the largest loan on our plates will undoubtedly free our minds of a huge burden. Not to mention all of the other opportunities (listed above) that it opens up.
My husband and I have a goal of paying off our mortgage in 10 years. I am bound and determined to beat this goal, so let me know any tips for paying off the mortgage that you have! And good luck with your own mortgage endeavors. 🙂
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