A number of people even in the FIRE community will often sing the praises of not paying off your mortgage. The idea is that if you can lock in a low interest rate, you can pay the minimum on it while investing the rest in something like the stock market, which will likely have higher returns than paying off the mortgage.
I’m not going to say this is necessarily wrong. The past ten years have featured artificially low interest rates, so it’s been the perfect time to employ this strategy. But it only ever makes sense in an environment of low interest rates, and even then I still have some beef to pick with it.
First of all, a mortgage, no matter how low its interest rate, is a structural weakness. You either pay it in a timely manner for the whole duration, you sell it, or you end up losing the whole thing. You could get 99% of the way to the end, and exceptionally hard times could possibly cause you to lose it all. For that reason, mortgages are not to be trifled with. Mortgage means “death pledge” for a reason.
Second of all, although there are many reasons to trust in market growth, the future is uncertain. When you pay off your mortgage, it has something of a guaranteed return. And again, a 2% or 3% return may not seem like much if your were able to lock such a low rate in, but markets can go negative for quite awhile, too, and cash can be eroded by inflation. If inflation is high over several years, leading to a net loss in cash and pretty much everything else, something with a solid 3% return might not sound so bad in comparison.
Third of all, if you were able to eliminate having to pay monthly for a place to live (notwithstanding the costs of maintenance and insurance), you could put that money to better uses. A lot of people, with a paid off house, would be far more capable of surviving comfortably in times of recession, as they would have that much more money to continue paying for things like food and entertainment. This in turn would smooth out the effects of economic cycles and keep money flowing.
Now, there is one key danger to paying off your mortgage early, and that is opportunity cost. If you dump every spare dollar into paying off your mortgage, you might pay it off, or you might get 99% of the way there, come upon hard times, and lose the whole thing, as mentioned earlier. For this reason, it probably isn’t the smartest decision to put every spare dollar into the house, but rather you might want to develop a balanced approach. Personally, I’d consider something like a 50/50 split between paying extra on the mortgage and using the rest for raw savings, whatever form that might take. Or, personally, I would consider simply not buying a house until I could pay for it in cash (but this isn’t widely considered an option, for reasons). It’s also important to note that if your company gives you a match on contributions to a retirement plan, that match is essentially free money and you should probably try to get as much match as you can. Otherwise, I would prefer to have a big pile of cash, but everybody has different views on this.
But the other thing about paying your mortgage off is that debt…is bad. I’ve talked about this before, and I know some people say debt is a tool, which it can be, but the Bible literally says that the borrower is slave to the lender. It doesn’t say debt is evil, it doesn’t say debt is necessarily some sort of moral failure (in fact, one of the prophets died and left his wife saddled with his debt), and it doesn’t say to never go into debt for any reason. But it does say that the borrower is slave to the lender. [And to pay your debt responsibly if you have it, and some other things, but I’m writing from the hip today. I can’t cover every angle in one blog post]
So it’s especially strange to me that some Christians simply ignore this. “Debt is a tool, man!” They’ll go out and tell everyone they know to not pay their mortgage off, because you could see that sweet green grow in some other way. It sometimes works great, until the house of cards collapses. “Just take out a second mortgage and invest it, man! You can’t go wrong!”
“Yeah, bro, I totes see what you’re saying, man. I’ll take your advice and make this multi-six figure decision because it sounds good, man!”
Bloody hell….
Again, there are times debt can be a tool, but that doesn’t mean it makes for a great long-term strategy, unless you enjoy being on the hook for hundreds of thousands of dollars. I don’t care how rich it “might” get me if it has a decent chance of ruining me at the same time. But hey, maybe you’re cool with that risk, I don’t know.
For that reason I say…nix the mortgage, if you want to own a house. It drives me up a wall that so many people try to get you to make these big decisions when these decisions otherwise dramatically increase the complex dependencies in your life (I need to rewrite my Life Engineering posts). “Yeah, bro, million dollar house, man! You can’t go wrong! Houses always go up so you can only make more money, man!”
Do yourself a favor and buy freedom instead. I mean, be strategic about it, know your circumstances and how to go about things, but don’t think that having a noose around your neck is a good thing just because it’s fashionable.
[Of course, this is all being written by someone who doesn’t own a house and doesn’t have any plans to own a house anytime soon. But that’s largely because it’s not conducive to my lifestyle, costs more than I’m willing to pay, and carries with it many dependencies I feel I’m much better off avoiding. YMMV. That being said, if I ever do buy a house, and don’t pay for it outright, I’d be plotting ways to kill the mortgage as soon as I could]