5 Ways Life Changed After Paying Off Our Mortgage (and 3 Ways it Didn’t)

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By: Marc | Vital Dollar

Every new homeowner dreams of the day that their mortgage will be paid off. Waiting 30 years can seem like an eternity, and getting the opportunity to pay it off early can be a huge relief. But does paying off your mortgage impact your life in the ways that you think it will?

In 2010, my wife and I purchased our first single family home. It was a new construction, 4 bedroom home that was more than double the size of the condo we’d been living in. We paid $235,000, with 20-25% as a down payment on a 30-year mortgage.

Initially, we decided to only make the minimum monthly payment and focus on our retirement savings instead. My blogging business was doing pretty well and we were able to save/invest a good amount for a few years in a row.

In 2014, we had a lump sum of money that came from a blog I had sold, and we decided to go ahead and pay off the mortgage. We felt like we had a good start to our retirement savings, and the previous year my wife had left her job to be a stay-at-home mom. As a family now living on a single income that was unpredictable, we felt like paying off the mortgage would reduce our stress over money issues.

So 4 years into our 30-year mortgage we paid it off. It felt good to be debt free in our 30’s (I was 35 and my wife was 33), but we were already starting to think about the possibility of moving.

We loved our home, but it was in a new development with small lots and little-to-no privacy. From our backyard or our front porch, you could see countless other houses.

We looked at some bigger properties that would give us a little more privacy, and in 2016 we decided to move. This move gave us a bigger property with the privacy that we wanted, but we also had to pay more for it. The house cost $417,500, and we sold our old house for $240,000. We didn’t want to go back to a mortgage, so we paid for this home with cash.

While paying off our mortgage did have some of the impacts that we expected, there were some other things that surprised us. In this article, I want to take a look at the ways our life did and did not change since becoming mortgage-free.

5 Ways Life Changed After Payout Off Our Mortgage

1. Freed Up Money Each Month for Other Things

Not having a mortgage payment every month obviously means we have more flexibility with our money. All of that money that would otherwise go toward a mortgage payment or rent can be used for retirement savings, other investments, or whatever we choose.

If we had put 20% down on our current home and we had a 30-year fixed rate mortgage at 5% interest, our monthly payment would be $1,793 before taxes and insurance. Without the mortgage, that $1,793 can be used however we want or need it to be used.

2. Increased Our Peace of Mind Dealing With a Fluctuating Income

The main reason we changed our initial approach and paid off the mortgage was to minimize stress over finances. We knew that on paper it probably made more sense to continue with a standard monthly mortgage payment and invest the difference, but we felt like the peace of mind was more important to us.

At the time we were new parents, and the thought of providing for kids for the next 20 years can be intimidating if you’re living on a single, unpredictable income that could drop or go away completely.

Paying off the mortgage has in fact given us more peace of mind. Of course, there are plenty of other bills to be paid, but a mortgage is usually the biggest, most important part of the budget. Since the mortgage was paid off in 2014 my business has had ups and downs, and it’s always good to know that without a mortgage or rent, there is one less thing for us to be concerned about.

3. Convinced Us We Could Afford More

As I mentioned in the intro, not too long after we paid off the mortgage we started looking at other homes. Ultimately, we moved in 2016, two years after we had paid off the mortgage.

Our current home was more than a 40% increase compared to what we got for our old home when we sold it. If we paid for a mortgage each month I wouldn’t have been comfortable moving to a more expensive home at that point.

Again, my fluctuating income is a factor here, as I wouldn’t have wanted to take on added risk by going with a larger mortgage. In the end, we got a home that we love, but we had to pay for it.

We weren’t crazy about spending an extra $175,000 for our home, but it was necessary to get the home and property we wanted for our family. We had the money in savings to pay for the house without a mortgage, so that’s what we did.

Although I love our current home and the privacy that it gives us, I’m not sure I would make the same decision if I were to go back in time. While I think we can afford it, I’m not sure that we need it, and I’m not sure that I wouldn’t rather have that money to invest. In this case, I think having the mortgage paid off hurt us because we wound up spending more money.

4. Reduced Our Net Worth

Prior to paying off our mortgage in 2014, we were only making our minimum mortgage payment each month, and we had no other debt. That meant we were able to save and invest more money each month and each year.

If we had decided to keep going with our investing plan instead or paying off the mortgage early, we would have a higher net worth than we do now. Since 2014 the stock market and pretty much all of our investments have done well. By paying off the mortgage we had less to invest, which means less growth at this point.

When we decided to pay off the mortgage we knew that it made more mathematical sense to invest the money instead. Despite knowing that we could have a higher net worth right now if we had decided to invest it, I still think paying off the mortgage was a good decision for our family based on the increased peace of mind. But moving after we already had the mortgage paid off was probably not the best financial decision.

5. Lowered Our Minimum Monthly Expenses

Without the mortgage payment each month, we’re able to cut back further if we need to. Of course, we still have plenty of other expenses like health insurance (I’m self-employed), food, and utilities, but if things get really tight we have the ability to cut back pretty far if needed.

Being self-employed, there are times when lower monthly expenses are a relief. Being able to cover all of the bills with our emergency savings for a longer period of time, if needed, is reassuring as well.

3 Ways Life Didn’t Change After Paying Off Our Mortgage

1. Didn’t Completely Remove Stress About Money

Although we have more peace of mind knowing that our home is paid for, we’re far from stress-free when it comes to finances. Our path towards financial independence has us in a decent spot, but the goal of trying to retire early also brings pressure to constantly make progress or fall behind schedule.

2. Didn’t Make Housing Free

Our budget is lower without a mortgage payment to deal with, but we still have plenty of expenses related to the house. Our property taxes are close to $9,000 per year, which is fairly high for a small town. The bigger property and older home that we moved to also leads to more maintenance and upkeep costs. In total, we still spend over $1,000 per month on things related to the house.

3. Didn’t Change Our Long-Term Goals

Paying off the mortgage impacted our present budget and how we manage our money right now, but it really didn’t impact our long-term goals. Being mortgage-free is nice, but it’s nowhere near as important as reaching financial independence, which can happen with or without a mortgage.

Our net worth goals and our target retirement age are still the same, and we’re still trying to inch closer to the goal all the time.

Conclusion:

Paying off our mortgage has had some of the impacts that we expected, like more peace of mind, but it’s also had some consequences that we didn’t expect, like convincing us that we could afford to spend more on a home.

Deciding whether you should pay off your mortgage or focus on investing is a personal decision and there is really no right or wrong answer. For us, it made sense with an unpredictable income to pay off the mortgage, and we haven’t regretted it.

About the author:

Marc is a personal finance blogger at Vital Dollar, where he writes about managing money, saving money, and making more money. He’s been blogging full-time since 2008 in industries like web design, photography, and travel.

14 thoughts on “5 Ways Life Changed After Paying Off Our Mortgage (and 3 Ways it Didn’t)”

  1. You missed one very important part of paying off your first mortgage early you saved roughly $140,000 in interest. That would have been had you kept the house. You decided to sell 2 years later. Instead of paying $18,000 dollars to the bank as interest on the loan, you had that in equity and got that money back upon selling. Were your personal investments doing that well to have earned not only the $18k but enough to pay the potential capital gains taxes.

    By paying cash for the second house, you have avoided about $310k in interest along with random fees for closing on a loan.

    Could you earn that or more by investing that lump sum today? Maybe. But that is the game you play with investing. You have a known amount you just made/did not pay, today!

    Your net worth has not decreased by paying cash. Your property has value. Could that value decrease? Yes. But the bank will not reduce your payment, interest, or overall debt if it does. You would still owe them the money no matter what.

    Does this house cost you more? Sure. But are you happier here than where you were before? If so, than be happy. If not, than start planning for a change. But know you will not have to bring money to the table if you sell.

    1. Thanks for your comment. The point about reducing net worth is in comparison to what our net worth would be if we had invested that money instead. If 4 years ago we had invested that money instead of paying off the mortgage, our net worth would be higher today than it is.

      1. Sure, but that is only in hindsight. Had you paid your mortgage off in 2007, ahead of the last major recession, you’d sing a different tune.

        We paid our house off in 2012, and moved up. We paid that house off in 2016.

        I too said, well the market did very well AFTER we decided to pay off the house. In this case, our net worth would be higher too, but it can EASILY go the other way when markets go down. The peace of mind is worth it…and I don’t regret paying my house off one bit.

  2. I have regular conversations with people who have the capacity to pay off their mortgages, but they’re not sure if they should. The best answer is usually found by applying simple math (can this money be put to use somewhere else that would yield a higher return?), but there’s an emotional component like you mentioned. The peace of mind is a big deal for many and an achievement of sorts.

  3. I be curious to see the analysis. I think the numbers are very close: pay a $200 K mortgage at 4% fixed over remaining 25 years or pay off same mortgage in Year 5 of 30. One the one hand, you zero out the debt and save on the interest payments. On the other hand, you free up the monthly mortgage expense which you can invest. With interest rates around 4%, it is close. As interest rates go up, I would wager it is better to pay off the mortgage. Especially with the Trump Tax Plan.

    You unknowingly benefited because the Trump Tax Plan created a standard deduction so high that most people won’t be able to donate their mortgage interest. I doubt most people recognize their mortgages no longer result in tax savings anymore. Many of them will learn when they file their income taxes next year.

  4. Money to invest a specially in stocks should be a money that you can afford to lose. Paying your mortgage was right decision. Now do whot ever you want with whot ever you have.

  5. You don’t say where you live, but we just bought solar panels for our home to reduce our electric bill…and it does the job. Costco also has a program where you purchase your electricity from a company that places their solar panels on your roof; no money up front.

  6. Wow. Still trying to pay off my 100,000, 800 square footer, almost there!! Guess a 30 years of public service was a dumb idea. Just read an article about teachers in Oakland teachers making 46,000 a year. Bet they dont have to make that decision either.

    I should have done something like start a blog.

    You must feel fortunate to have the opportunity to make such a decision. Well played sir!

  7. Good overall discussion. I had a few questions with your article, as I appreciate you detailing both sides. So many times there are arguments on both sides and it’s not specific to each situation. I think it’s important that an overall approach and strategy be used and not just a tunnel vision approach.

    1. Do you think the bank can take better care of your money than you?
    2. Is there anywhere else in your financial life where you would want money growing close to 0%?
    3. Did losing control over your money and the opportunity to grow it bother you after you sold the first house, or not until you bought the second home?
    4. What tools or resources do you have that could help you determine what’s best for you and your family in the future, instead of looking back at decisions and thinking there could have been a better choice?

  8. If they weren’t following Dave Ramsey’s advice they would be millionaires many times over. Now they are debt free with zero income producing assets and then they go right into another mortgage. If they had used the money to buy investment properties instead, they would have cash flowing assets to offset the risk of him losing his variable income.

  9. I too paid off my mortgage (30 yr mortgaged ended up paying in 9) and if I had used the extra money instead for investing I would have definitely come out financially ahead but that is only using the retroscope which always has 20/20 hindsight. Although odds are in favor of investing having more gains there was still a possibility you could have lost a lot more.

    I am pretty conservative and would take the guaranteed return of my interest rate (it was high when I financed at 5.625%).

    The freedom when you own every blade of Grass on your property gives me more non monetary reward than any market return could. Now I have more capital to invest as money coming into my house does not have a lenders name attached to it.

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