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…but no one ever talks about the reasons to pay off your mortgage early.
So, in some sense, we really aren’t owning our homes – 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 to pay off your mortgage early (and why we’re doing it):
Related post: How to Pay Off the Mortgage Early
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The Interest You’re Paying is Enormous
The total amount you pay in interest may be double, or even triple, the amount of the actual cost of your 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.
Your Mortgage Payment Would Become Extra Monthly Cash
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.
Related post: 6 Things You Need to Stop Paying For
You Can Begin Investing in Real Estate
When you pay off your own mortgage, you open up the opportunity to take out another mortgage for an investment property.
This is a really big deal for me (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.
Related post: 10 Things I’m Doing to Pay Off My Mortgage Early (and the One Thing I Won’t Do)
You Could Get 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.
No matter what your financial situation is, when you eliminate this massive debt, you greatly increase your security and lower your risk. There’s just way less expense every month!
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.
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 goal is to pay off my 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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5 Comments on 7 Important Reasons to Pay Off Your Mortgage
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Thank you for the point about the FAFSA–that’s very interesting and not something I’ve seen pointed out elsewhere. In response to your first point, though, remember that your house is appreciating–depending on where you are. Where I am in the northeast, my house has appreciated in the time I’ve lived here approximately exactly the amount that I’ve paid in interest–so if I sold today, I would actually make back all of the interest I paid into it. Also, it’s discouraging to think that half of your monthly mortgage payment is just going to the bank, never to be seen again … until you remember that ALL of your rent check was just going to your landlord, never to be seen again! At least with the mortgage payment, I keep half of it!!
Just remember that paying off your mortgage does not mean no one can take your house. The property tax and insurance is still due every month even after principal and interest are gone, and if you have a hoa don’t forget that. For us all that comes out to like $300/mo. Nothing compared to the normal amount, but still.
that’s totally true! There are definitely things you still need to pay for. But cutting out that principal and interest payment is usually an unbelievable amount of money. 🙂 Still totally worth it! 😉
I could not agree more!
We are striving towards the very same goal. We hope to be able to reach ours in 5 years, but we started with a small loan in the first place.
We try to live on as little as possible and put every extra penny that we can towards our mortgage. It’s amazing how quickly that number whittles down. It gets addictive in a good way!
Wishing you the best on your mortgage-free journey!
Thank you!