Funny Looking House

Paying off your mortgage early is silly

My initial introduction to the world of personal finance was through a friend turning me on to a gentleman named Dave Ramsey. You’ve probably heard his name thrown around. You might have seen him on TV or maybe you even listen to his radio show. I personally take everything he says with a grain of salt. It’s kind of hard to trust multi-millionaires, who have already made their millions, trying to tell you how to save a few bucks at the grocery store.

His vision is for everyone to have financial “peace of mind”. I interpret that to mean having no debt, and money laying around in case of disaster. And I totally agree. He touts a 7-step plan that will get you out of debt and into the black that he refers to as “The Baby Steps”.

When we were still in debt, Mr. Ramsey’s Baby Steps were an incredible tool that ultimately helped us get into the right mindset to eliminate debt completely. It wasn’t the Baby Steps themselves that made us save, but they did help us form a plan to become a debt-free family. So, thanks Dave.

A few months after discovering his site, we were a debt-free family. We graduated from the Baby Steps program and that’s when I think we outgrew his philosophy.

dave ramsey seven baby steps - Johnny Moneyseed

Step number 6… Why?

People all over America and beyond flock to him to learn the power of being debt-free. His anti-debt message is so strong that he even encourages people to pay off their mortgages as fast as possible. In some cases, he’s encouraged people to pay off their entire 30-year mortgages within 5-10 years. Amazing right? Well, I for one, think it’s silly.

I consider my family to be debt-free, however, we carry a 30-year mortgage on our house. The interest rate is so low (3.25%) that after the mortgage interest tax deduction, we are essentially paying a rate LESS than inflation for our house. Why in the world would I want to pay off our mortgage early? Why would I ever even make a larger than normal mortgage payment?

Since we only spend about 50% of our income, we could take the other 50% and dump it on our house every month for about 5 years and pay it off completely. Then I wouldn’t have a mortgage payment any more. “Yay!”, right?

Well I’m not “Yay”-ing, because I just wasted 5 years of investing so I could pay into a liability. Yes, a house is a liability, because it doesn’t produce any income. It could, but only if you’re in the market to sell, and your home’s value has appreciated (or if the property is a rental). Remember that home values mean nothing unless you plan on selling**.

Over that same 5 year period, I could tuck away that other 50% of my income into savings and other investments instead. 5 years later I’ll have a bunch of money in the bank (like a baller), which would be great padding were we to have another recession in the near future.

The people who choose to put all that extra money into the house will just owe less on their principle balance. It won’t change their monthly payment, and in a financial pinch they’ll still have to keep making payments without that sweet cushion.

The good thing about paying my mortgage off as fast as possible would be the guaranteed return on investment. When you have a debt that is negatively impacted by interest like a mortgage, personal loan or credit card it’s like having a portfolio with a negative rate of return.

Every dollar applied against your “portfolio’s” principle balance early is guaranteed to grow at whatever the interest rate the debt is set at. If you make all of your payments when they’re due (instead of early) you’ll end up paying all of the interest as well. This is no bueno.

Basically, any pre-payments on my mortgage will grow at a rate slightly better than CDs. Abysmal. For you this may not be the case.

I don’t worry much about paying off my mortgage early since it has such a low interest rate and because the house should hold it’s value. That means, if someday I want to sell the house, I can sell it at a break-even price (enough to pay off the mortgage) and I would have only lost what I paid into interest.

People always seem to be worried about the possibility of losing money, but with interest rates for mortgages being so low right now the risk is almost negligible. Just remember that risk is never “negligible” for someone that can’t pay their bills on time.

As long as you aren’t buying more house than you can afford, and you aren’t paying PMI (mortgage insurance) then I think a house is a pretty solid investment. If you end up with an interest rate of 4% or less and you let someone convince you that paying off your mortgage early will grant you “peace of mind”, don’t buy what they’re selling. Your money is worth a lot more than 4% annually.

If you are paying PMI on your house, I would get on the Ramsey program and dump a shitload of your money onto your mortgage until you get to the point when you’re PMI-free, then continue paying your mortgage like I do: Minimum balance due. PMI is a good way of flushing money down the toilet. You’ll never see it again.

Obviously none of this applies to people who are being crushed by 6%+ interest rates. -6% is a pretty significant weight in your portfolio. If you’re able to, contact the bank and see if you’re eligible for a streamline refinance. After owning our house for one year we were able to do a streamline refi through Wells Fargo. No credit check. No appraisal. We had to re-pay closing costs, but it was worth it financially for us, especially because we are going to be renting the house out. The less we owe every month = The more profit we can generate.

Owning a home can be pretty sweet, but it takes a lot more work and caring than renting does. All a renter needs to worry about is paying the rent, and maybe mowing the lawn. A homeowner needs to worry about the mortgage, the lawn, maintenance, the roof, safety, random house-related-bills, etc. If you’re a renter and you knock a hole in the wall, you might just let the landlord eat your security deposit. If you’re a homeowner you gotta fix that shit on your own (or at least hire someone to). Either way, the responsibility is yours.

While Dave Ramsey isn’t a bad guy and I love anyone that tries to help people financially, I can’t and won’t trust anyone who is out of touch with common folk like you and I. His cookie cutter plan is a “you can’t fuck this up” kinda thing and that’s why it resonates with such a broad audience. It’s a message for the masses, not for people who have figured out personal finance. Let me know if you’re ready for the next steps, the Big Boy Steps.

**Home values also matter for tax purposes. Appraisals may be necessary for some refinancing programs.

**I’m sure this post will be debated like crazy and I’m open for the challenge!


  270 comments for “Paying off your mortgage early is silly

  1. April 23, 2013 at 8:37 am

    The interest rate caveat is a big issue. If you were lucky and were able to get a rate in the 3-4% range then I couldn’t recommend paying off the mortgage, 5%+ and it’s a viable option for extra cash. Of course this goes out the window if you want to reach ER and the mortgage is all that’s holding you back. At that point I’d probably let me investments coast and funnel the rest towards the mortgage so I could guarantee to always have a place to live once in ER.

    I was also introduced to PF through Dave Ramsey and a lot of things are just common sense. The issue is that a good education on personal finance was never really bestowed upon me so he more or less just brought it to the forefront of my mind. Luckily I never really did anything bad with my money and just naturally saved a bunch so my starting point wasn’t that bad. It’s a great plan for the majority of people because he breaks it down into easy steps that anyone can follow and make sense of. Although I do disagree on some things such as the 12%+ return on your investments and cutting up the credit cards. Credits cards are useful and accepted everywhere, plus they offer so many more perks with fraud protection, rewards…Even though credit card rewards aren’t great, why wouldn’t you want to earn 1-2% cash back for the things you would be buying anyways.

    • December 9, 2013 at 6:14 pm

      Agreed the %age comes into it. We were late to the game but still managed to fluke a 2% mortgage (some people I know are still on zero!) so any overpayments at this stage seem silly. It’s variable, but base rate changes don’t seem to happening very fast so there should be plenty of time to transfer money into the mortgage if we can see a rise starting to happen.

    • FA
      July 7, 2014 at 5:59 pm

      One of the most ridiculous things I think I’ve heard in the past couple years is the title of this article, “Paying off your mortgage early is silly.” What? Are we all Keynesian now or what? Jeeez! Please STOP giving bad advice!

  2. April 23, 2013 at 9:04 am

    Yep, as long as you have the discipline to invest that extra money versus buying cars or other silly crap, I agree completely.

    Right now, I make about 10% from peer lending. As long as that continues, there is no way an extra dime will go into the mortgage.

    Six years ago, my savings account was paying 5%! While a return to those days is still a while off, when it does happen and I’m still paying 3% on my mortgage, I’m going to be pretty happy.

    • Johnny Moneyseed
      April 23, 2013 at 5:37 pm

      Right, even if we’re a long way off from 5% interest rates from the banks we will eventually get back to that point. It’s kinda funny, I told someone in the class I’ve been taking today that I make earn more than 5% on my money and they couldn’t believe it. They thought I was talking about general savings rates and went on to tell me that the stock market and rental properties were terrible ideas. I’ll let them keep thinking that, while WE keep raking it in.

      • Steve
        July 14, 2013 at 3:57 pm

        What happened to our exchange about Betterment? I was going to post in your budget blog page but why bother when they just get deleted like they never happened?

        • Johnny Moneyseed
          July 14, 2013 at 4:05 pm

          Steve — My ENTIRE site got deleted the other day. It had to be restored from a backup. I lost a lot of comments, and a few of my most recent posts. I’d love to chat about Betterment. I was thinking about writing a post about it in the near future. I would never actively delete a comment — Even the nasty ones. Unless I’m asked to, of course.

          • Steve
            July 14, 2013 at 5:02 pm

            Oh, OK. Sorry to hear it! I had no idea. This was such a strong post against Betterment and I’ve been really digging the service since last October. I have no affiliation other than being a customer. You had commented a couple days ago that you no longer felt that way about them as you did back in April. I’m still curious why you thought they were “garbage” at the time.

          • Johnny Moneyseed
            July 14, 2013 at 5:21 pm

            Well the main reason that I thought it was a garbage service is because they’re just a middle man that you’re paying extra fees to. If you bought shares of all of the funds represented by Betterment, you could essentially save the .35% fee. But, the fact that they make it so easy to invest is worth it. Especially for those people that don’t know where to begin, or those who don’t have the time to manage a big portfolio.

          • Steve
            July 14, 2013 at 6:20 pm

            Yeah, to me it’s worth it. I got the fee down to 0.15% by rolling over an IRA and putting some after tax money in there. They also auto balance your investments to make for hands off investing. Just set it and forget it. Plus, I’ve got automatic investing going every time I get paid.

          • Johnny Moneyseed
            July 14, 2013 at 6:31 pm

            They’re really the only company that I actively advertise. That’s why there’s a static Betterment link at the bottom of my site. I should start posting results of how my Betterment account (hands off) is performing against the rest of my portfolio (hands on).

          • Steve
            July 14, 2013 at 7:05 pm

            “I should start posting results of how my Betterment account (hands off) is performing against the rest of my portfolio (hands on).”

            That would be fantastic. I’d really like to see that.

      • UTVol
        October 19, 2013 at 3:21 pm

        Curious if you choose to take out a LOC on your home in order to invest into the market? As you build equity, I would assume you continue to borrow against your house in order to invest in the market.

        • Johnny Moneyseed
          October 20, 2013 at 11:44 pm

          NO! NEVER! I understand what you’re saying here, but I eventually want to have a paid off house — especially in retirement.

      • Matt
        January 4, 2014 at 4:07 pm

        That makes no sense. Why would you want them to stay out of the market? Stock values are determined by one thing. Buying pressure. Unless you are shorting stocks or buying put options then you should encourage others to get into the market as well. No brainer.

        • Ben
          March 5, 2014 at 1:57 pm

          Although I don’t agree with you, good read. You almost had me convinced it might be a good idea, until I read your comment posted on October 20, 2013. You were replying to the question of whether or not you would get a LOC on your house in order to invest, to which you replied “NO! NEVER! I understand what you’re saying here, but I eventually want to have a paid off house — especially in retirement.”

          Isn’t this basically the same thing? If you can get a LOC that has an interest rate the same as an interest rate on your initial mortgage, why wouldn’t you? They are both debt, both on the house, both the same interest rate. I don’t see any difference.

          This article is about keeping debt on your house to invest it, yet, taking out new debt on your house to invest it is not a good idea?

          Am I missing something?

          • Johnny Moneyseed
            March 5, 2014 at 2:05 pm

            You’re not missing anything, and yes I’m silly for not wanting to take equity out of the house to invest. I understand that it’s a good way to get money for close to nothing. And you can do it if you’d like, but I don’t want to make payments on a debt forever, even if I’m more than making up for it with my investments. I just don’t feel like I, personally, would have to take this route.

  3. April 23, 2013 at 9:07 am

    This is funny that you bring this up. I drove by my parents house last night and they were telling me how they were able to pay off their mortgages so quickly. They currently own 4 houses, 3 of which are rentals. You bring up a good point about the interest rate. When my parents bought their homes the interest rates were a lot higher today than they were in the past so paying the mortgage down quicker did serve a more pressing issue. Today, I have a 5 year ARM at 3.5%. The only reason I want to pay it down as quickly as possible is because we have negative equity in the house and want to move.

    • Johnny Moneyseed
      April 23, 2013 at 5:41 pm

      Instead of paying it down quickly I’d rather stuff that money into the bank or into another investment vehicle. You could always withdraw a huge chunk of money to bring to settlement, so why give it to the mortgage company up front when it won’t even change your monthly payment?

      When you get to a point where you have a bunch of houses I can see using the profits on the houses to either 1. Buy more houses or 2. Pay off the houses. That’s just good business. You don’t want to owe anyone anything once you’re in business. But then again, I don’t care if we still have a few mortgages when we become Financially Independent, just as long as the house we’re going to live in is paid off.

      • Hamster
        April 30, 2013 at 11:44 am

        If they plan to sell it within 5 years, then they are getting a guaranteed rate of return of 3.5% for that short time window. What would you have them do? Put it in the bank at <1%. That's a loser in the short term. Stocks? I would agree if you had a longer horizon, but if they want to sell it in a few years, then putting it in stocks is quite risky if they already have negative equity in the house. Even if it doesn't change the monthly payment, it does decrease the portion of the monthly payment that goes to interest.

        I would fully agree with you in the case of a long-term investment horizon if they are going to invest in something that will out-yield the 3.5%. This isn't that case

  4. April 23, 2013 at 9:20 am

    I think one small point here is while you are paying extra on the mortgage you are saving 15% towards retirement.

    So you’re not really missing gains from retirement. This also is for people that plan to stay in their current home.

    Also you point out that you’re house isn’t and asset because it doesn’t produce income. Well it does increase your cash flow with a 100% guarantee every month.

    So us an investment that can guarantee a return and create cash flow every month without any risk.


    • Johnny Moneyseed
      April 23, 2013 at 5:46 pm

      Duane, I’m not really sure what you mean about a house increasing your cash flow by 100%. Can you clarify?

      • James
        May 4, 2013 at 4:10 pm

        Duane means that once paid off the money you would have paid towards your mortgage is now freed up for you to do anything you want with it.

  5. April 23, 2013 at 9:23 am

    Love that you had this post today. For us, we would rather pay it off sooner than later just because W has a mostly commission based job, and when I eventually make the transition to self-employment, my income will not be as steady also. I figure if we have the extra cash, then why not?

    • Johnny Moneyseed
      April 23, 2013 at 5:49 pm

      Michelle — Perfectly acceptable to want to pay off your mortgage by a certain point because circumstances will change. I feel like that about retirement. I don’t want to carry a mortgage payment when I don’t have actual employment. But instead of making extra payments, why not just save up and eventually make one huge-ass payment to kill the loan? Mini over-payments don’t really serve a purpose.

      • Grace
        June 17, 2013 at 11:03 am

        Sure they do. Those little payments add up. A hundred dollars extra a month add up to 6,000 in 5 years. It is easier to give a hundred a month than 6,000 at once. And concerning interest rates they could go up. There are no guarantee that they won’t go up. Dave Ramsey is right.

        • Johnny Moneyseed
          June 17, 2013 at 6:15 pm

          Your interest rate won’t change unless you refinance or you have a variable rate loan, so that shouldn’t be an issue. I’d rather have the security of knowing I had $6,000 in cash, in case I fell on hard times, than make mini-payments every month and know that I still owed money on my mortgage. If you pay it off you know you aren’t indebted to anyone anymore, if you make small overpayments you just reduce the principle, but still owe the same amount every month. Dave Ramsey is right, if his advice is what you want to hear. It’s all opinion based.

          • Grace
            June 17, 2013 at 8:58 pm

            I purchased a house later in life so I try to pay it off a little faster. When I refinance the interest could go up. I paid my school loan off really fast but the mortgage is a little more difficult. But it is a good idea to have good savings account before you pay the mortgage down much especially if there are any repairs to be made. It is a real challenge but I love it. And I read Dave Ramsey’s book through. We are no more common then he is. I think there must be a lot of rich people like him that live way below their means. The people who look rich are not rich at all. They are probably in debt over their head. The so called common people are probably millionaires that no one knows about because they are so simple.

          • Ice
            August 1, 2013 at 11:57 am

            I agree that cash is nice to have around in case of hard times. On the other hand, due to compound interest, you will be slightly ahead if you pay $100 extra per month for 5 years instead of waiting until the 5th year to pay a $6000 lump sum.

          • Johnny Moneyseed
            August 1, 2013 at 12:41 pm

            You’re half right, although mortgage interest is simple not compound. Spread out payments are always more beneficial than lump sums, but with a low interest rate you should be looking for a place to put your money that can have the effects of compound interest.

      • Adam
        June 17, 2013 at 2:11 pm

        Mini over payments reduce the principle faster, meaning you aren’t borrowing as much for as long a period of time, therefore you save more money of the length of the loan.

  6. April 23, 2013 at 9:32 am

    Houses nowadays are not even just liabilities, they have become commodities and aren’t even “investments” anymore. If you’re beating inflation then it does not make any sense to pay it off so quickly. You also forgot to mention the tax benefit of keeping your mortgage payments.

    • Johnny Moneyseed
      April 23, 2013 at 5:53 pm

      David — I did say this: “The interest rate is so low (3.25%) that after the mortgage interest tax deduction, we are essentially paying a rate LESS than inflation for our house.” The tax-benefits are that I get about 25% of the interest I pay in a year on the loan back. That’s pretty significant considering we paid over $15k in interest last year! There are other tax incentives as well, but those generally vary from house-to-house.

    • April 27, 2013 at 9:44 pm

      While having a tax deduction due to mortgage interest is good to take when you have it, it is no reason to keep a mortgage. You don’t get dollar for dollar return on mortgage interest, so it is would be the same as you paying me $3000 a year and I give you back $1000, Doesn’t sound like a great deal. When you deductible income matches your standard deduction then there is even less reason to keep a mortgage for tax benefits.

      If you are earning more in investments than paying in interest then that is a no brainer also.

      • anonymous
        July 14, 2013 at 7:07 am

        someone here actually makes sense. I am stabbing myself reading this article. my friend pays $1300 a month just on interest on his mortgage. are u really making that much a month on investing….just because something is the same interest rate does not compare apples to oranges if you are paying interest on something two hundred fifty thousand dollars versus earning that interest on fifty dollars.

        • Johnny Moneyseed
          July 14, 2013 at 1:35 pm

          By your logic if you had a maxed out $5,000 credit card with a 20% interest rate it would still be smarter to pay off your mortgage first, because your mortgage is create more interest MONTHLY than the credit card.

          Your investments will grow to $250,000 easily over time, as long as you’re actually investing.

          Another thing is that over time your mortgage interest payments will go down while your investment interest will increase. Plus the fact that mortgage interest is simple interest while investment interest compounds.

        • Gary
          December 7, 2013 at 8:49 am

          I think this should be discussed, because this falls in line with an interesting scenario: person#1 takes out a huge massive loan at a loan interest rate and spends a large majority of his money on the mortgage letting that be his only investment. Person #2 Moved in a house so small that cost the same amount of Person#1 down payment…30k. Person#1 and Person#2 make 100k a year. Person#2 uses his money to buy Real estate assets while Person#1 spends all his money on his mortgage. After 15 years who has more in assets?

          • Johnny Moneyseed
            December 7, 2013 at 5:57 pm

            This scenario is absolutely ridiculous. To test a theory of who saves more you have to put them in the exact same property, one being a rental and one being mortgaged. I ran the numbers based off a $200k property. Basically rent is going to run you around $1,500 a month. Which would cost around $270,000 over 15 years (without factoring in price adjustments). Buying a $200k property you’d need $40,000 up front and the P/I payment would be around $800/month. They would spend $184,000 over that period. The interest tax deduction and the Tax/Insurance portions of the mortgage nearly negate each other and I’m not going to estimate them because these numbers vary significantly from house to house.

            The mortgagers are way ahead though. By about $100k, and they have an asset that most likely appreciated in value over 15 years. The other couple will have to buy into a more expensive market as well.

          • December 7, 2013 at 8:36 pm

            I understand the renting compared to buying comparison. I was referring to Person#1 and Person#2 as both buying a home. Person #1 puts 40k down on a 500k property at at 3.5% Interest rate on a 30 year note. Person#2 buys a very small home for 40k and chooses to invest his money in rental properties. Remember they both earn 100k each. Person#1 is dependent on his primary residence to appreciate and since he is a handyman plans on making some improvements to garner some equity in the property. Person#2 is a wise investor and too is a handyman and hope to buy four properties fix them up rent them out and have them paid off in 15 years. To keep things simple, lets say the 4 rental properties add up to 500k and are on a 20 year note at 3.5%. After 15 years who would be ahead? There are some variable they you may need, I will be happy to add them upon request. This was the very same comparison in my MBA course, so I thought you would enjoy it as well.

          • Johnny Moneyseed
            December 8, 2013 at 10:38 am

            Okay, I understand what you’re saying, but again you can only really use one variable when you’re trying to compare things. You can compare a person who buys a $500k property vs. one who buys a modest $200k property. They have to earn the same income and have the same skill level when it comes to home repairs. OR you can compare people who have equal properties, and the variable can be their levels of handyman abilities. Mortgage lengths also have to be the same. If this was an MBA question it’s absurd to factor in so many differences.

            Person 1’s property might be worth about $700,000 in 15 years, and they would have paid down about half of the original purchase price when you factor in downpayment and monthly repayments. So they could sell and see $450,000 (without factoring in taxes or anything like that).

            Person 2 is a fantasy character. What does a $40k house look like in an area where $500k home exist? If you want to make the guy frugal, you could put him in a $200k property. Or he could buy a shortsale/foreclosure for $150k, and use another $50k to bring it up to liveable quality. Basically, this guy #2 is me. I’m in an area where the Middle Class lives in $400k-$600k houses, and we CHOOSE to live in a $240k property. I’m going to have more money in the long run than someone who earns an equivalent paycheck, but holds a higher mortgage. Our houses will appreciate at roughly the same levels, but our investment isn’t our house. It’s great that it will appreciate over time, but so will every other house. So, if we were to sell, we’d need somewhere to live, so we’d end up losing some of our profits to move into an equivalent property.

          • December 9, 2013 at 8:09 am

            You are correct, these were two extremes to compare and for a reason. It is to show that a home is not an investment and the more dollars you have available (opportunity cost) to explore other investments the better. If you put money in an account one day to pay off your mortgage that is A good low risk strategy, but a better one would be to use those dollars for a RE investment that can earn you passive cash flow, then use those cash flow dollars and pay the mortgage off early. In doing this you minimize the risk, keep opportunity, and reduce your mortgage while receive tax advantages. This is leveraging on a personal level. If people minimized the size of their homes …say 500sq. ft a person, minimized other expenses, and used those dollars to buy at a min. one rental their lives would be much more secure and to remember a home you live in is NOT an investment.

          • Johnny Moneyseed
            December 9, 2013 at 10:20 am

            As long as we’re in agreement :)

  7. April 23, 2013 at 9:45 am

    I tend to agree with big Dave on most things but I do understand he is preaching stage 1 of personal finance. We are actually aggressively paying off our house to lower our monthly fixed cost (should take less than 2 years total). I think most super disciplined financial individuals (ala MMM) should have no trouble paying off their mortgage in a few years and still investing aggressively. I like the idea of having no payments and a ton of money in investments.

    • Johnny Moneyseed
      April 23, 2013 at 5:57 pm

      I’m not saying there’s anything bad about paying off your mortgage completely, I’m just saying that when you are in the time of your life when investing should be a priority, it wouldn’t make sense to pay extra on a mortgage instead.

      You may drop your monthly fixed cost, but I don’t think that should be achieved by spending extra monthly. As I’ve said a few times, why not just wait until you can pay the whole thing off to make a huge mega-payment to kill the loan? Monthly over-payments only suck at your total monthly costs and they won’t have a very significant impact on your loan’s balance.

  8. April 23, 2013 at 9:57 am

    Obviously, I can’t relate to any of this yet being a renter in New York and all. But, I do understand the notion of “healthy” debt. Similar to good ol’ Dave I have a huge aversion to debt and I think I’ll have a bit of a hard time feeling I owe money, but I see your point.

    Most of all enjoyed you using millennial speak, “like a baller.”

    • Johnny Moneyseed
      April 23, 2013 at 6:03 pm

      Erin — I think I’m going to sprinkling a little bit more millennial speak around here. I think it just helps drive the point, ya know?

      You said it yourself though, a mortgage is (can be) good debt. At the current rates, it’s almost like you’ll be able to pay face value for your house. It may cost me $600,000 for a $350,000 over time, but if you think about it, if I were to pay cash in 30 years for the same house it would cost me about $600,000 cash. Doesn’t that make sense? Inflation is a crazy thing.

  9. April 23, 2013 at 10:11 am

    Though our mortgage was at considerably higher rates than prevail today, the best financial decision we ever made, imo, was paying it off early. We saved tens of thousands of dollars that we could then invest as we saw fit. And the freedom of being mortgage-free can’t be quantified but I find invaluable.

  10. Debt RoundUp
    April 23, 2013 at 10:25 am

    This is a tough one. Your mortgage payment is usually your biggest expense. I would take a little different approach and invest and pay a little extra toward the mortgage. When I say a little extra, I am talking about one or two extra payments a year, so you could really cut some time off, but you are still investing. I don’t have a low interest rate like that, but I am not paying down my mortgage because we are moving soon. There are always ways to do things with a two-pronged approach.

    • Johnny Moneyseed
      April 23, 2013 at 6:08 pm

      That’s a total “peace of mind” type of thing you’re talking about. People can feel comfortable about paying their mortgage off early, but it won’t save them if they’re ever in a bind. You can’t ever say to the mortgage company “Well, remember when I made those extra payments?” They’ll be like “Yeah, thank you for giving us more money, we’re still going to foreclose your property”.

      Just jam those “extra payments” into an account called “mortgage payoff”. Let the money grow until you have enough to pay it off however early you want. I bet my ass if you had a huge chunk of money you’d rather keep it than drop it onto the mortgage though, because there is no real benefit to having a smaller principle balance (unless you need to refinance or something).

      • April 23, 2013 at 10:49 pm

        While I hate debt, I’m in agreement with JM here. All of our extra money goes into peer lending which is earning more than 10%. If I get into a bind, I’ll just stop reinvesting/putting money into it and take the payouts.

        Peer lending scares the sh*t out of a bunch of people. However, this is the future of lending and is regulated by the government. The people who tell me I’m nuts are the ones who don’t understand it.

        • Terry - So. Cal.
          June 18, 2013 at 4:31 pm

          Great blog/article – also some REALLY good posts & replies.

          ** Mr. 1500 – I am just finding out about P2P lending and would love to hear some pointers. Can you point me in the right direction so I can further educate myself about this?

          ** Also – JM / 1500 – what about paying off “some” of a mortgage early? Say that we have a $450,000 mortgage. Even at a fixed rate of 3.25% and taking into consideration our tax break…we’re still paying a very high dollar amount each year on interest alone. Similar to you, we paid +$15K in interest last year too. I just don’t see where I could beat that savings (or get an immediate, $15,000 return and what I can afford to invest right now).

          So, I guess my specific question is: For people in our situation, would you recommend to get that mort. balance lowered to around $100-200,000 first, and then stop paying down the mortgage early so we can allocate *all* of our extra income into investing? Would love to hear a reply – Thanks!

      • Grace
        June 17, 2013 at 10:37 pm

        That is an excellent idea. I never thought of that one.

        • Grace
          June 17, 2013 at 10:39 pm

          So what you are saying is even with extra money paid monthly it does not drop the interest that is owed? It just pays down the principle.?

          • bad puppy
            September 5, 2013 at 2:26 am

            No, that’s not what he’s saying. When you start paying your mortgage, MOST of what you are paying is interest and very little principal. But as you pay the principal down, the interest becomes lower. You DO drop the amount of interest that is owed as the principal drops. And paying it off very early is tempting because then you can save a lot of money on the interest you don’t have to pay because of putting a ton of extra money toward the principal.

            The problem is… it’s a gamble. Because… you’re going to get SOME of it (the interest) back in a tax credit. (about a third of it), so that’s part of the issue reduced. Plus if you are investing money wisely, the returns on your investments have good odds of being higher than the interest money you’re losing even after the tax credit. So basically that same money you might have used to pay off your mortgage early is EARNING you more money so you’re coming out ahead if you’re investing wisely.

            But even if you aren’t doing anything like investing and that’s too scary for you, you can just SAVE that money you would use to pay off your mortgage early until you save the principal (to whatever it is by the time you save the money up) and then you pay it all off. Yes, you’ve paid more interest this way. And if you haven’t invested, then you have lost more money to interest, but it’s still the safer option because nobody can predict the future of their finances and if you pay giant sums of money on your mortgage to “pay it off early” the bank doesn’t care because your monthly payment is still the same. The interest being paid drops but hte PAYMENT ITSELF does not.

            If you start out with a mortgage payment of $1200 a month it will be $1200 a month until the whole mortgage is paid. More and more of that $1200 a month will go toward principal as time goes on, but it’s still $1200 a month. So let’s say you paid your mortgage WAY down and you owe like $25,000 on your house. You’re feeling pretty good about this, but then financial disaster strikes and you don’t have the $1200 payment, let alone extra to keep paying the mortgage down. Well, the bank takes your house and you lost tens of thousands of dollars, you have crappy credit, and you have no home to live in.

            That is why paying down the mortgage is not necessarily a good idea even though people WANT to do it to feel safe. It’s not the safest thing you can do. If you’d saved all that money instead toward paying off the mortgage when you had the total amount you needed, all the while making your $1200 monthly payment… you hit that hard time and oh look at this buttload of money you have set aside in savings. You can still pay your payment that month and the next month and you can still keep your house.

            Sorry this was long and kind of hijacky, but I felt like Grace really didn’t get it and was trying to help.

  11. April 23, 2013 at 10:25 am

    As a renter, I don’t have to worry about this yet. But I think I will probably feel the same way. I might lean towards a 15 year mortgage (Ramsey gets in your head!) just because I’m not really interested in buying a home until my early to mid 30s and I’m not sure if I want mortgage debt into my sixties. I guess we shall see.

    I’m very curious to see what interest rates will look like when I’m ready to buy. Maybe I’ll just rent forever!

    • Johnny Moneyseed
      April 23, 2013 at 6:11 pm

      I think 15 year mortgages are great. They usually offer EVEN BETTER interest rates than 30 years, but you have to drop a lot more every month on the balance. It’s kind of a trade-off. You’d obviously have less money to invest in other things. What I’d like to do is save 20% of purchase price, buy a house to rent it out. Then once I can raise another 20% buy another house. Then keep up with that trend until I’m making so much in rentals that it would be silly to not try to pay them off early.

  12. April 23, 2013 at 11:08 am

    I think Dave Ramsey is a great starting point for people who are drowning in debt and for whom personal finance in general drives them to become neurotic.

    No, his math (and advice) is not always spot on. But given his target audience, I agree with him. Yes, you should pay down your mortgage if it’s keeping you up at night, giving you an ulcer, stressing your marriage, and you happen to be incapable of understanding the math that shows you why this is a bad idea.

    • Johnny Moneyseed
      April 23, 2013 at 6:13 pm

      This is probably the best comment so far. I couldn’t have said it better myself.

  13. April 23, 2013 at 11:36 am

    I’ve seen both sides and can see the pros and cons of each – or maybe it can be a dual approach where if you have 50% extra, then 25% can go to extra payments and 25% can go into investments (or a variation of the allocations)? I guess it might just be a matter of personal preference – either way, it seems financially responsible if people aren’t wasting the extra income on dumb stuff (which it doesn’t sound like the Moneyseeds will ever do!). :)

    • Johnny Moneyseed
      April 23, 2013 at 6:19 pm

      Anna — That’s funny that you think we are so financially responsible :) It isn’t true all of the time, but we try our best, and we know when we’ve overspent. We use every transaction as a learning opportunity, which a lot of people don’t do. A lot of people dwell on past mistakes and that prevents them from trying again. It causes people to be risk-averse.

      If you’re pre-paying your mortgage it probably means you are very risk-averse. To the point that you think that a mortgage will weigh you down in old age unless you do something about it now. I’ve made small pre-payments in the past, but I feel like those were mistakes. Hundreds of extra dollars against my mortgage balance and you wouldn’t even be able to tell. I know I can’t.

  14. April 23, 2013 at 11:52 am

    Target audience is key when understanding what Dave Ramsey is suggesting. Once you have past the point of basic financial knowledge, and are looking ahead (investing), and not back (paying your consumer debts), it is time to graduate to a slightly higher level of thinking. People will have a basic understanding of inflation, investing, and reasonable returns.

    Like you have done JM, those same people will evaluate the financial implications of paying off their mortgage in an accelerated fashion, or continuing with a regular payoff. Each person is different based on their life circumstances. Personally, I am all in favor of good debt, as I think there are very positive ways to leverage yourself and get ahead (like owning a rental property or two).

    • Johnny Moneyseed
      April 23, 2013 at 6:23 pm

      I know a few people who should have graduated the Ramsey program as well, but continue to drop significant amounts on an “investment” that offers 4% returns at best. These are young people. They may as well be investing all of their money in bonds. There is too much damn money to be made out there!

  15. April 23, 2013 at 12:22 pm

    J got approved for an even lower rate of 2.7 variable for 5 years so I don’t think he’s in any hurry to pay his mortgage off but I know he plans on making extra payments. I think it’s because we know we won’t be in this 1.5 bedroom condo forever and because it’s in a non-rental building, we know we will have to sell down the road and find a bigger place to start a family. I see both sides, but because I’m currently in debt, I would lean towards paying of any kind of debt, mortgage included as soon as possible. But that’s just me. By the time, I am actually ready to take out a mortgage with my name on it, I might think differently!

    • Johnny Moneyseed
      April 23, 2013 at 6:26 pm

      I would be pretty skeptical of a variable rate mortgage. That means after the 5 year period, you have no idea what the interest rate is going to be. Usually they start off with better rates (like 2.7%). But what happens if it goes up to 4, 5 or 10%? Typically when people get 5 year adjustable rate mortgages they either plan to pay off the loan within the 5-years or they don’t plan on owning more than 5 years.

      • Adam
        May 25, 2013 at 3:29 am

        Federal law dictates that all ARMS have a lifetime capped of how high they can go. Typically 5-6% higher than initial rate. It should be stated in the loan terms. Typically 2.25 margin above LIBOR, with adjustment periods of 1 year after initial lock.

  16. April 23, 2013 at 12:36 pm

    If you do pay off your mortgage early and you need cash, what are your options? You could sell your house to get the equity, but then you have no place to live. Or you could take out another loan on your house and pay that off all over again. If you instead chose to pay your mortgage and save a chunk of money, then when you need money, you can just withdrawal it from the bank. Plus it is a lot quicker to get money out of your bank account than to have to apply for and get approved for a new loan all over again. Just something to think about.

    • Adam
      June 1, 2013 at 4:28 pm

      Money in your bank account makes nothing (or damn close…money markets making like 0.03% and saving accounts making like 0.5%), while money on your mortgage makes whatever your interest is, minus some tiny number for tax deduction on the interest paid.

      The “bundle it all up” move is less risky, since you have a ton of liquid cash, but it does cost you.

  17. Anne @ Unique Gifter
    April 23, 2013 at 1:03 pm

    I have a couple points here. The first being the discussion of risk balancing. Deciding to pay off your mortgage should be related to your income volatility and cash flow management concerns. What you do if you are employed by 100% commission versus a tenured professor should result in a very different portfolio, which balances your risk across your assets, liabilities and cash flow.
    As you have mentioned, it is a guaranteed, risk-adjusted return that you achieve by paying down a mortgage. Also, don’t forget to include the tax implications (which are very different btwn Canada and the US, for example.) Not everyone will have the same risk-tolerance as you, so a 4% GIC yield could be the alternative that they’re looking at.
    In slightly less than two years, my household will be able to live off of a single minimum wage income. Not that we ever would, but our ability to invest in more liquid things will be absolutely huge, while backstopped by extremely low cash flow requirements. It also means we will be more able to pursue entrepreneurial endeavours. That’s the choice that works for us. Additionally, given the way taxes work here, we will then be able to re-leverage with deductible interest, which is not the case currently.

  18. April 23, 2013 at 1:19 pm

    It’s one of those debates in life I think.. I know it is wrong technically to pay off your house in full and you should be using the tax breaks from the Mortgage and freeing up the equity to invest. However, it is very nice to have your place paid for in full. Also, whilst we have seen some nasty examples of housing crashes, I think over time that housing is more stable than equities, and it comes with the benefit that you get somewhere warm to sleep…

    I decided that despite some apparent benefits to the debt for leverage argument, the best place to be is owning everything you want, and being a lender rather than a borrower.

  19. April 23, 2013 at 5:01 pm

    I would say this is an oversimplification. For people in a comfortable situation, they may be able to take on more risk for greater gains and make “more” in other investments. However should those investments go poorly, the could be out their fund AND still have the mortgage hanging over their head. I’m working on a post on exactly this topic so I’ll be sure to link over here when I go live.
    But there is a lot more to think about than just a simple interest rate calculation, including:
    – your risk tolerance
    – your age
    – time remaining to pay
    – where you plan to live there forever or not
    – the rest of your financial situation
    – and, frankly, no one should ignore the peace of mind that comes with living without a significant housing expense.
    My take is that we actually have an INCREDIBLY RARE OPPORTUNITY to set ourselves up to be mortgage-free. A lot of people are going to be looking back with regret at this era in 15 more years.

  20. April 23, 2013 at 6:07 pm

    It seems like some pretty straight forward math. As long as your investments yield more than 3.25% annually over 30 years, its always better not to pay it off at once. I really think it’s that simple. Although I guess that’s easy for me to say because im a renter…

  21. April 23, 2013 at 8:31 pm

    I don’t think that there is a cut and dry answer for everyone. Matters like this are deeply personal and much more comes into play than simple math.

    I remember watching the documentary “Queen of Versailles” (Have you seen it?) and hearing David Siegel talk about how you should always have a mortgage on everything you own so that you can “make money on other people’s money.” By the end of the documentary, the Siegels were going broke due to a weakened economy and the financial troubles of their business. I couldn’t help but think that if Mr. Siegel had actually owned something-his house for instance-that he would be in much better financial shape. Instead, his financial life was crashing down around him…and since he owed so much money everything was going to hell.

    The Siegels have since turned their financial life around. However, I think that there is a lesson in the movie. The lesson is that it’s a good thing to actually own your belongings, especially the place you live. Labeling all mortgage prepayment as “silly” just sounds like ignorance on your part. My parents are a great example of people who paid their mortgage off early and reaped the benefits their entire lives. My boss, who is a millionaire many times over, also paid off his house in less than ten years.

    I think that the key is to keep saving and investing in the meantime. Prepaying your mortgage instead of saving for retirement wouldn’t make much sense.

    The point is, people can do both and it’s important not to dismiss other’s financial goals because they don’t align with your own. I have learned a lot from blogging…and one thing I have definitely learned is that there are a lot of paths to financial freedom. Remember, the stock market is hopping right now. Every investor feels like a genius when they are making incredible gains in a fairly short amount of time. But, the market always corrects itself sooner or later. And when those times come, having a paid-off house doesn’t look so bad.

    • Johnny Moneyseed
      April 23, 2013 at 9:17 pm

      Holly, I watched the “Queen of Versailles” about a week ago, and I think the Seigel family had more issues than just not having their mortgages paid off. That movie was really painful to watch and their values seemed so skewed from what I know to be normal. I know a lot of that was probably Hollywood manipulation, but it’s probably really hard to have millions (or billions) and not turn into a spendaholic, because your money never really seems to disappear. Until a recession hits, which crushed them obviously.

      I want to pay my mortgage off early as well. I don’t want a 30 year mortgage on my property (properties), but I do think small pre-payments along the way ARE silly. Doesn’t it make more sense to save up enough money first before wiping out the mortgage debt? If a recession happens and half of the country is out of work and you have a house that you’ve made pre-payments on, but haven’t completely paid off yet, you’re going to be struggling. I’m not saying you need to align to my way of thinking. I know you guys are fans of Dave Ramsey, and I’m not calling you out in any way for liking him or listening to his radio show. But I do think that he ruins the potential of so many American families that should have graduated out of his program as well.

      I think a better idea than paying off a house would be to save 20% to put down on a 2nd house and start renting it out. You don’t need to pay it off to start generating money.

      My real argument is that, obviously you are smart and care about your finances, and ultimately you will make your own decisions, but the rate of return from investing into your primary house is so negligent that it weighs down your portfolio and makes it weaker. I agree you can prepay and invest at the same time. All I’m saying it invest first, pay off in full once you have the money to do it.

      • April 24, 2013 at 7:14 am

        I just think it depends on where you are financially. If someone doesn’t have any savings, then it doesn’t make a lot of sense to prepay their mortgage.

        But for us, we are in a different position. We turned our first home into a rental home. A year later, we bought another rental home. I woud love to buy another rental home at the moment but just don’t feel that it would be wise due to time constraints. We already have two, and our hands are more than full!

        I’m not actually a Dave Ramsey fan. I think a lot of his view on credit cards, debt, etc are old-fashioned. I have a years worth of income expenses in cash savings and a very small mortgage left. I could pay off my house much earlier than I plan on if I wanted to. Prepaying in incremental payments instead of a lump sum doesn’t make me silly at all. I’m just not putting all of my eggs in one basket.

        • Johnny Moneyseed
          April 24, 2013 at 8:46 am

          Well if you’ve already made all of the right moves, then yes, prepaying your mortgage is the next step. I’m all about financial freedom, so if you know what you’re doing and you don’t really NEED to be jamming money into investments then pay off the house and increase your cash flow. This article wasn’t really intended for people who are already winning the game as hard as you are.

          • April 24, 2013 at 9:13 am

            I don’t think we are in complete disagreement then. I wish that people were able to save enough money to pay off their house in one fell swoop, but they generally aren’t. People suck at saving, so I understand why Dave Ramsey advises that people pay off their house in monthly prepayments. It’s more realistic for the average person who wastes most of their expendable income.

          • Adam
            June 1, 2013 at 4:36 pm

            What am I missing here?

            Where do you keep your money while building up the one big payoff where the rate of return is HIGHER than your mortgage even at a nice low, say, 3.25%?

  22. April 23, 2013 at 11:16 pm

    In my case my mortgage is well under $100,000 there is no reason for me to keep that mortgage any longer than necessary because I could be investing that money. In fact, the standard deduction is more than the interest deduction when I do my taxes. So, I am accelerating my payments and hope to pay everything-debt/condo/school loans in 3 or 4 years. Then, I’ll rent out the condo and purchase another property. But, if my mortgage was over $225,000 it’s a totally different discussion. A lot of people reading this post are either in good financial shape or are aggressively working towards being debt free before the mortgage. The debt free have a lot more choices available to them and are able to keep up with their mortgage payments while investing. At the end of the day, paying off your mortgage early depends on your personal circumstances and what make you feel comfortable financially.

  23. April 24, 2013 at 1:24 am

    I wrote about this recently. Basically, once I’m debt free and investing in a college fund (about $200 a month), I’ll be throwing 50% into investments and 50% on the mortgage. I see it as a balanced portfolio. Half in securities, half in a physical asset. I feel like that’s a win-win, and since I’m not the kid of investor that can guarantee 6%+ returns in ANY market, I’m hedging my bets on the guaranteed return of mortgage payoff.

  24. Brian
    April 24, 2013 at 8:38 am

    I agree with the above posters that Dave Ramsey is great for people who are so far in the debt they have no idea what to do. But other than that I think he is a waste of airwaves. I am one of the people who thinks a 3 – 6 month emergency fund is completely overkill and is basically a liability since it is losing value all the time due to inflation. I get that some people want it and if it makes you sleep better at night, go ahead and have one I’m not going to stop you.

    I would not go as far as to say a house is a liability since they do tend to appreciate in price and you can unlock value from them with a HELOC (which I wouldn’t suggest living off of) and if you are old enough you could do a reverse mortgage and your house would cash flow for you (again not a great idea). But I am with you; it is very doable to beat 3.25 when investing for the long term, so there really is no point in paying a mortgage off early, unless it just makes you feel all warm and happy inside

  25. ynabmark
    April 24, 2013 at 12:55 pm

    Johnny – thanks for a thought-provoking post. I don’t have anything to add, but I appreciate the food for thought. I debate this subject (with myself) all the time.

  26. April 25, 2013 at 2:28 am

    I am so not in a place to think about home ownership, but it’s interesting to read both sides!

  27. April 25, 2013 at 4:20 am

    I have a low rate mortgage on a rental that I don’t plan on overpaying unless the rate goes over 5% or something. My main house I paid cash because mortgage rates are around 8% in Guatemala and I like that it is paid for. Remember Dave is talking to people who are in a bad place financially, and for most, a guaranteed 3.25% in savings by paying their mortgage is the best they can do. If you have an addictive attitude towards money you may gamble on the stock market and go back to where you started in no time. Better safe than sorry.

  28. April 25, 2013 at 4:06 pm

    I don’t think anybody touched on this…early or late in the mortgage cycle matters. If you can chip away at the balance early the savings could be immense if I’m not mistaken. But putting up a huge sum to kill off the mortgage a couple years early, not so much.

    • Johnny Moneyseed
      April 25, 2013 at 5:51 pm

      Pretend you make an early pre-payment one month of about $100. If you make it within the first year of the mortgage you’ll end up paying $150ish less in interest over 30 years (at 3.25% APR). If you make it within the last year of the mortgage you may not avoid much interest at all. Single digits at best.

  29. April 26, 2013 at 9:17 pm

    Yes, By 100% I mean that if you owe $50,000 on your mortgage and you pay it off. You are going to increase your cash flow the amount of your payment each month.

    If you took the $50,000 and invested it into the stock market you can’t guarantee a return each month of your payment.

    The stock market brings risk, where paying it off is reducing your risk by paying off debt, and increasing cash flow.


  30. April 28, 2013 at 4:39 pm

    We’re using Dave Ramsey’s steps right now (currently on #3, the emergency fund), and while his advice has been a great help I definitely questioned whether the later steps were right for us. Paying off the mortgage was one thing that I really wasn’t sure about, so I’m glad you addressed it. We moved into our current home in September and we only have a 3.25% interest rate, which is awesome. Our old house was 6.5%, and we thought that was great at the time! Unfortunately we are paying PMI, which really bugs me. I still think we made a good move, but wasting that money each month is irritating. We’re required to pay it for a certain period of time, but after that I think I’ll take your advice and throw extra money at the mortgage to get rid of the PMI, then go back to normal. I can see us getting through Baby Step 4, but after that I think we’ll make our own decisions.

    • Grace
      June 20, 2013 at 9:47 pm

      i am thinking about the idea that if interest rates go up I could end up paying a larger monthly payment. .Besides I like to get things paid yesterday.

  31. April 28, 2013 at 10:25 pm

    Nah, having a mortgage in the first place is silly. If I could go back and do it over again, I’d save enough to pay for my house with cash from the start. Since I didn’t do that in the first place, paying it off quickly was the next best thing.

    I’ve seen this debated endlessly on blog after blog. One constant I’ve noticed is that the people who actually DO pay off their mortgages aggressively never seem to regret it. I know I certainly don’t.

    • bad puppy
      September 5, 2013 at 3:00 am

      I think people who pay off their mortgages early rarely regret it, you’re right. But that’s the people who successfully complete their mission… I really think the main argument is that it’s a big gamble. If you’re throwing large amounts of money at your mortgage to pay it off early, but then a recession hits or you otherwise hit hard financial times before you’ve managed to pay your mortgage off and you can’t pay your bill, you lose your house and the bank doesn’t CARE that you made all those early payments or how much you paid the debt down. I think the moral here is that people pay off their mortgage early often because they are risk-averse, but if you’re TRULY risk-averse you protect your money a little better so that you HAVE IT if you fall on hard times. If the bank responded to early payment by letting you skip a month here or there when times got rough or by reducing your monthly payment, that would be one thing. But it’s like you didn’t even pay them that money from their perspective. And also JM has said that if you can save up the money and kill the mortgage in one fell swoop, awesome, do it. But I don’t really think it’s particularly “safe” unless you have a strong nest egg or strong investments already to be throwing a lot of money at a mortgage that will still expect the same monthly payment no matter what you paid the month before.

      • Adam
        September 8, 2013 at 2:10 pm

        Foreclosure is certainly very bad, and everybody looses (except maybe the dude picking up your house on the cheap), but you don’t loose your entire investment. You can private sale the home up until the foreclosure sale actually takes place. Also, even if it’s foreclosed, the bank gives you money back based on what you have already paid in. I’m not sure of the details of that (maybe Johnny can research that and elaborate), but it’s not like the bank can foreclose when you owe 1 dollar and you get nothing!

        I’ve always advocated for having a very healthy emergency fund (6 months for “risk takers”, 1 year for super-security) before contributing extra to mortgage payments. I guess that would fall under the “strong nest egg”….

        • Adam
          September 8, 2013 at 2:11 pm

          *loose = lose =P

  32. JeannetteLZ
    April 29, 2013 at 8:35 pm

    I am 25 years old and I am getting ready to pay off my mortgage loan. I am doing this for savings purposes and I don’t understand the point behind giving a bank over $400 per month on interest. I work hard for my money and giving away money to someone who is already rich is not my piece of toast. Once my home is paid off I will continue saving as I have been able to the past 2.5 years (that’s how long I’ve had my house, which happens to be a foreclosure and I paid less for it than what it’s actually worth) or even more because now I won’t have that dreaded mortgage payment. I have 3 children and if anything ever happens I want to know they have a home and now I will begin saving for their college education and my retirement. Once I turn 26 I will be mortgage free and will be saving for our actual future but for now I am making the biggest most important step into a secure future for my family, having OUR home. Honestly right now that I still owe it to me it’s “The Bank’s House”.

  33. Jon
    April 30, 2013 at 11:44 am

    Interesting take. The reason I have always wanted to pay off the mortgage early is just to free up that cashflow as early as possible (and make the expenses as low as possible), but your thought makes a lot of sense with interest rates so low!

    It seems like this could be one of those things where not paying it off might logically be the better move (because you have a good chance of growing that money at a higher rate than your interest rate), but the psychological benefit of paying off a mortgage is a big one.

  34. April 30, 2013 at 1:52 pm

    This almost seems like a generational issue. My mortgage rate is 3.37% for a 30 year fixed while my boss’ mortgage rate was 10%…despite being a generation apart the 2 mortgages cost the same whole dollars to pay monthly.

    While I agree with JM, and probably will follow his path (i.e. save/invest a boat load and one day pay it off) the thought of not having to send in $2,000 a month is really really seductive lol

  35. May 1, 2013 at 10:46 pm

    Good, thoughtful post. Rates are so low that many people can do better investing elsewhere than paying off the mortgage. Its also important that you pointed out that making small extra mortgage payments do you no good in the short and medium run, since its applied to principal at the end of the mortgage

    One additional thought, on the topic of ‘Big Boy Steps,’ which I haven’t seen written about here: For people who are ready and able to handle it, a home equity line of credit can be a handy wealth-building tool. In some cases it makes sense to pay down one’s fixed rate mortgage but then have a hefty line ready to draw down on as opportunities arise.
    This is definitely way beyond Dave Ramsey territory, but if you’re on to Big Boy Steps, it can be an amazing investment tool.
    My further written thoughts on that here:

  36. May 9, 2013 at 7:30 am


    Good post but only works in low interest environments as you have said. In Australia we have in general around 5.5% but more like 6.5% for most people. Also there is no tax deductions on your mortgage for your home here like in the US. In this scenario, it does help to pay off the mortgage.

    I ran some calculations. A 10 yr fixed mortgage loan is 7.5% here. Floating rate are similar to the ones I suggested earlier.

    If I ran two calculations of 30 years and 20 years mortgage with weekly payments (weekly pays off faster than monthly), here are the results.

    Scenario 1 Scenario 2
    Loan amount: $350,000.00 $350,000.00
    Loan term: 30 years 20 years
    Minimum repayment: $565.00 Weekly $650.00 Weekly
    Total interest paid: $482,319.00 $308,801.00
    Interest rate: 7.5% 7.5%

    For the same mortgage you have paid interest of 308K rather than 482K and you are debt free 10 years early. I like this scenario. Yes, you are paying more every month. About $85 a week more but the savings are immense.


  37. Nina
    May 12, 2013 at 6:16 pm

    I am 47 years old and my husband is 53. We bought our house in 1991 for 500k. It is now worth 1.3 million. We just paid our last mortgage payment and own the house outright! With 2 kids in college at 120k a year, it sure feels great to not have a mortgage payment anymore and know that we will have somewhere in the range of 1.5-2 million when we sell the house in 10 years when we are retiring….. that money, plus our money invested over time will give us a nice little nest egg when we retire into a condo or much smaller home and enjoy the rest of our lives doing the things we love with NO debt at age 65!

  38. Andy
    May 17, 2013 at 11:59 pm

    Pay it off early! I agree not to do so incrementally – put it in a safety net account and then take the plunge and pay it off all at once. Why pay early:

    – just looking at a low interest rate offset by a tax deduction and inflation is narrow thinking and excludes other practical considerations, viz:

    – I’m 45 and I’ve owned 5 homes. Think of all the closing costs to the bank for new loans!

    – early years of a typical 30-year note go mostly to interest, which, with new loans every 5 or so years, means a higher effective interest rate and a slower build-up of equity.

    – interest rates are bound to be higher in coming years, so if you move, unless you can “transfer” one house for another debt-free, you will be paying a higher interest rate in the future. Why not pay off your lifetime home debt now, when rates are low?

    – the tax deduction for mortgage interest paid is not guaranteed in the future. Congress may nix that.

    – I think that investments in tax-deferred savings (like 401k accounts) are not a good alternative to paying off a mortgage, at least for young people. Why? Because taxes will be higher in the future, even at lower brackets. And, with an aging population, we may have a flat stock market the next 25 years (much like again Japan has experienced). In short, I think that the total dollar value I see on my quarterly 401k statement may be an illusion and not an accurate reflection of likely real value in 20 years. I’ll pay off my mortgage and then invest, but not in tax-deferred accounts until I am very close to retirement. I’d not recommend a 401k to anyone under 40 unless the match is superb, but even then, I have my strong doubts. One should not consider this as a separate discussion from paying off a mortgage, unless you have a lot of other kinds of investments.

    – Home prices in good areas are an inflation hedge.

    – My home is my castle. I lose my job, if it’s paid, I’m OK.

    – If instead of paying my mortgage off I bet on the stock market and it crashes, I will still owe the balance on my mortgage. Paying off the mortgage is a safe bet. Take risks after the house is paid off.

    • Adam
      June 4, 2013 at 1:07 am

      Your last point and your castle point resonate well with me!

      The “not incrementally” thing has me a bit mystified though. Like you yourself said, early years of a 30-year note go mostly to interest…so that is the time to attack them the strongest! Making a dent in the principle now will go a long way. Yes it will lower some of your tax return, but it will save you a ton on interest over the lifetime of the loan.

      If you don’t have an absolute boatload of cash to bust the full loan price, keeping a 6 or 12 month supply on the side, and putting a ton into it will do a lot to lower your total payment over the life of the loan, versus sitting it in a 0.9% (if you are lucky) liquid account.

  39. Financial Freedom man NYC
    May 26, 2013 at 1:43 pm

    Hey Johnny, love your idea on instead of paying down your mortgage put your money into a mortgage payoff account. This is exactly what I am doing because paying more a month like you said will not change my monthly payment. My question to anyone doing the same is do you have any ideas that is very low in risk for that mortgage payoff account can generate a better return then just sitting liquid in a bank account? This will be the payoff lump sum I will be using to payoff my loan early when I have it in full. I am looking for something close to a guarantee of say 2-5% with little or no risk. Obviously there are no guarantees when investing but any ideas on some safe tools to put this money to grow?

  40. Adam
    June 1, 2013 at 4:45 pm

    So here’s the big question: Where do you beat your mortgage interest rate? Rates on anything safe are very very low, well under, say, 3.25%.

    I see a lot of people talking about P2P lending and making 10% back – wow! Any particular sites they are using to invest?

    P2P seems extremely risky…you are investing in individuals on an individual basis. One schlump who doesn’t pay you back blows away tons of earnings from others who are “good for the money.”

  41. X-Pac
    June 3, 2013 at 12:53 pm

    This is so flawed it almost makes me angry..well almost

    Any type of investment has risk (volatility) associated with it, to think that you can somehow invest your money and get a better return than the bank that is lending you the money is very flawed..Why would anyone even give you a mortgage at 3% if they could make 6% in other investments??

    Why, because other investments are higher risk..

    Then comes taxes, wonderful that you can deduct taxes on your interest payment for the next 30 years..lets assume that rule actually stays in place and is always a loophole (which you know there a proposals to close that loop)..Anyway, what about taxes on your investment income? Whatever you do beyond your 401k will be taxed as well..that along with the risk associated with other investment makes it more wise to pay of your stupid mortgage…baring the last few years..average s&p retunr is around 6%, but trust me you will have tracking error if you do it on your own, so would a ETF and there is transaction cost, fees, taxes that will drag you down to 3%..sure some will beat the market if they dont buy broad index, but then you are just gambling by taking directional bets and having uneven portfolios…

    Finally, what about correlations..when shit hits the fan, everything becomes 100% ur stock portfolio drops, ur house is under water and you lose your job all at once..Google “Homeless in America” or “UK new homeless – BBC panorama”..check out these documentaries of folks who could have had a roof over thier heads at least if they paid of thier mortgage..

    • Johnny Moneyseed
      June 3, 2013 at 5:32 pm

      You’d probably be angrier with yourself if you took your own advice and failed. Think about this: If you were making larger than normal payments on your mortgage, and all of a sudden a financial crisis struck the nation and you were out of work, unable to make mortgage payments then what good would have all of those overpayments have been? If you were to save that money, even in the bank where it earns NOTHING, you’d at least have a safety net in case of emergency. The only way I’d suggest that someone prepays their mortgage is if they can do the entire thing in one shot. Otherwise, you’ll still have the same payment every month.

      Do you know how banks actually invest in a mortgage? They don’t actually spend any of their own money. Groups of investors collectively buy “shares” of mortgages, which earn them tons of money, which in turn provides the capital for the bank to write mortgages.

      Why wouldn’t banks be in the mortgage business even if they only earn 3%? The sheer size of the mortgage business provides HUGE incentives for money-making opportunities. What’s 3% of $4Billion? About what Wells Fargo makes in a year off mortgages alone.

      Investing in the stock-market can be volatile, but that’s why you diversify. If you’re that cautious and don’t have the greatest job security, put some money into bonds! They don’t contract when the market contracts. They work on a completely different metric. You should be angry at yourself, not me, for not understanding the basics about investing.

      • Adam
        June 3, 2013 at 8:42 pm

        Putting it into your mortgage would be 3.25%, whereas in the bank you make effectively 0%…maybe 0.5%. Rates like that are way lower than 3.25%! The whole “pay it off in one shot” thing would be quite expensive as you aren’t attacking the principle at all, so the interest will compound more, no?

        • Johnny Moneyseed
          June 3, 2013 at 8:54 pm

          No, when you pay off debt it does not compound. There is a fixed amount of interest you’d pay if you were to make all of your payments on time.

          • Adam
            June 4, 2013 at 12:15 pm

            Right, but if you pay extra into your loan the amount of interest you’ll pay for the money over the life of the loan will obviously be a lot less. The trick is: can you beat that savings?

            The conclusion I’m coming to is: “Yes, probably, but it’s risky. No way to do it 100% guaranteed for sure.” So it just depends on how much risk you are willing to assume, correct?

          • Andy
            June 4, 2013 at 2:36 pm

            Adam, I’m afraid that you and Johnny (and I) are ships passing in the night. Your point above about interest savings holds true regardless of whether you pay your loan early in incremental amounts or in one big final payment (unless incremental payments reduce your monthly payments). In my view, it is a no brainer – if you will pay off your home early – to do so in one big payment, but before then, to keep the $$ as a safety net.

            Johnny says do not pay off early. But if you must pay off early, he says pay it all off in one big chunk, so that you keep that pay-off money in your pocket until paying it all off at once. I agree with him in the “one-lump-dump” respect. However, I do not agree with Johnny in regard to the notion of paying off the loan early. He says don’t do it. I say do it. I am still hoping that someone will challenge me on the logic (or lack thereof) of my other reasons to pay a mortgage off early. (I hope we can move beyond the discussion about “incremental” versus “one-massive-dump” for the moment.)

          • Adam
            June 4, 2013 at 4:19 pm

            Andy I have clarified my own vision of going after your mortgage or not, and for me it boils down to safety. If you want to risk it, feel free, you’ll probably do better, but it’s not guaranteed. It’s a common theme in investing as you know.

            The reason I’m stuck on the lump sum is that I don’t think you guys have quantified the numbers on it yet. For a $250,000 mortgage @ 3.8%, doing a lump sum payoff will cost you an ADDITIONAL $37.7K! That’s a lot of $$$!

            Is it worth keeping that cash around on hand? Please note: you SHOULD have a 6 or 12 months reserve…I’m talking about above and beyond this.

            In a worst-case scenario you could take out a loan against your house or even sell your house.

            Is it worth $37.7K lost due to interest to keep that extra-fluffy cushion around (again, above and beyond your 6 or 12 month reserve)?

          • Adam
            June 4, 2013 at 4:33 pm

            [Wish I could edit my post….]

            It does not hold true. You pay MORE towards interest at the start of the loan than at the end. Check out mortgage calculator.

            By the time you have the same amount of $$$ saved up, you’ve already paid for all the interest because you borrowed more money for longer, so you would have been better off financially to pay in small amounts early, rather than pooling it at 0% and paying 1 large amount later. That makes sense, right?

            The action I pose to you is: quantify it! Run some numbers like I did. I think you’ll find out that the $$$ it cost you to pay a lump sum LATE is quite high, even at a good interest rate of say 3.8%!

          • Mark H
            June 6, 2013 at 4:15 pm

            I’ve been in 5 houses in the last 15 years the last of which for about 6 years. There was 1! year where I was able to actually get anything out of a mortgage deduction. So for me and probably many others mortage deduction doesn’t matter.
            My mortage got sold to Citimortgage and they had a great amoritization calculator to compare it and the savings was significant for paying more in monthly installments rather then saving it till I could pay it off in one lump sum.
            We were maxed out in our retirement accounts so we were saving a bit but given the returns over that time it probably would have been better to defer the retirement, at least over the match amount, and pay down the mortgage.
            As far as emergency funds. Get a Home equity line of credit before you lose your job since selling a house usually isn’t an option for short term cash. Paid off mortgage and a unused HELOC just in case for liquid/emergency money until you rebuild savings or even if you have savings is a great stress relief. Just make sure to get a HELOC that suits your needs so you don’t end up paying fees or minimums if it is unused.

  42. X-PAC
    June 3, 2013 at 9:46 pm

    I don’t know…still seems flawed to me..Shouldn’t real estate be part of a diversified portfolio? Banks may not own your mortgage, but as you said plenty of investors would rather earn a steady 3.5% rather than risk it in other assests.

    Bonds will yield less than 3.5% now won’t they..are you talking junk bonds then? They are called Junk bonds for a reason..T-Bill still around 3 for 30 years last time I checked….

    Obviously, you not paying your mortgage and putting it in stocks or other assests is great for the financial services industry..Banks actually not only model default risk, but also early payment risk…they dont want all that capital back without all the interest you would pay for the loan…

    On the other hand the financial services industry can make money from you through transaction cost and fees when you buy other assests….and also retail capital in the market is often stupid capital, always gets the timing wrong…

    I always thought that this idea of don’t pay down your mortgage and invest in stocks rather was promoted by participants in the industry for thier own benifit….

    I would seriously become a believer if you were to model this completely and show us how silly this really is.

    When you include all the factors, you would probably see that this is not that silly…

    This article makes me reflect on 2006, when some bloger posted that it is silly to get a fixed rate mortgage..what is the point he said? Real estate prices always go up…get a ARM, refinance later, you will have equity..Look at the data he claimed, last ten years..Your silly…What volatility

    Measure risk using Tail values, or the entire distribution, no distribution is normal distribution…

    • Johnny Moneyseed
      June 21, 2013 at 5:22 pm

      I think the thought of variable anything is garbage. I would never recommend such nonsense. My plan definitely works, because the end goal is still to pay off the mortgage early, it’s just pointless to do it monthly.

      Real estate should be part of a diversified portfolio. That’s why REITs were invented. You don’t need physical property for diversity anymore.

  43. Adam
    June 4, 2013 at 12:23 am

    So I ran some interesting rough numbers on 3.8% APR mortgage, which is one notch down from the best in my particular area.

    Rough numbers here….

    Paying an additional $250 per month on a $250,000 30-year 3.8% APR loan would save you $45,701 VS paying the minimum (not accounting for any tax breaks).

    If you were to sock the $250 away instead of pay the mortgage principle down, you’d have $65,000 with the same length of time it would take to pay it down.

    That means in order to beat paying it down, you would need to earn $45,701 with $65,000, investing $250 each month for 260 months (~21.67 years). This would require ~4.5% APR to achieve.

    Now if all my numbers are right, and I think they are (rough, but correct), that would be very hard to beat in a liquid account if you wanted to pay it off lump-sum at the end of the loan (when you have enough saved). I think this debunks the “save it and pay it off in one chunk” theory…or at least gives you an idea of what it would cost you:

    Assuming best-case liquid savings returns TODAY of 0.9%, it would cost you ~$37,773 to keep it liquid VS paying down the mortgage quicker with the $250 each month.

    Basically it puts it back into the ballpark of “Yes you could do better, but it’s not going to be guaranteed.” The stock market historically is ~10%, which is way over 4.5%, but I wouldn’t put money there expecting to pull it out at the right time to pay off your mortgage…who knows what the market will be at at that time?

    For me, this polarizes the issue: if you are a safe investor, pay off your mortgage. If you are OK with risks, drop it into the market or other investments for the long-term.

    • Andy
      June 4, 2013 at 12:42 am

      Unless you can lower your monthly payments by paying in steps early, you are silly to pay off the loan in other than a large chunk at the end. Unlike Johnny Moneyseed, I strongly argue you should pay it early; but just do so when you get enough $$ stashed away. Let that $$ be a safety net until you take the plunge.

      I have not seen comments on my earlier post and would invite you to read it and reply. Main themes: you are likely to move in the course of your life time. In five years rates may be a lot higher. So pay off a loan now, and you can transfer that equity by selling your house and buying a new one of same value, without a loan at a higher interest. Also in moving every 5 or 8 years, you typically restart with a 30 year note, with early payments weighted heavily in interest. That means the real effective interest rate is higher than stated for a lot of people (those who move). In short, you are smart to pay the house off as soon as you can, then invest in the market afterward, focusing on non-tax deferred accounts if you are 20 plus years from retirement.

      • Adam
        June 4, 2013 at 1:00 am

        Andy you draw a lot of positive conclusions about paying it off early, but my one question is: how do you stomach the waste of saving for a “total” paying while letting the let’s say 3.8% eat your breakfast big time early?

        See my earlier example…to pay in a lump sum, saving $250 a month, will cost you an additional $37,773 on a $250K loan VS paying the $250 every month!

        You are borrowing a lot more money for a lot longer time instead of lowering the principle immediately.

        I’m all for a 6 or 12 month emergency fund regardless of mortgage…but why go for a lump sum over that?

        • Andy
          June 4, 2013 at 1:15 am

          Adam, if I follow you, your main point is that paying $250 a month lets you pay it off earlier than if you save and then pay it off at once. Sorry if I am missing it. But if I understand you, I still don’t agree. Do your monthly payments go down if you make extra payments? I’ve not heard of that, and certainly that is not the case on any of the many loans I have had. I would rather have a safety net than make a few more bucks in risky investments. Then I will pay off my loan in one fell swoop.

          Johnny Genius Seed, I want you to try to refute my points above, my two posts. I have not heard a single point to counter my arguments (except for the “one large chunk” argument that we agree on — the one point we seem to agree on). Please challenge my thinking. If there are fallacies in my logic I want to reconsider my idea. Otherwise I am going to pull the trigger in a few months and be out of debt for the rest of my life.

          • Adam
            June 4, 2013 at 12:12 pm

            Andy my main point is: saving the money outside of the mortgage is going to cost you a lot of money!

            Unless you can safely make at least 4.5% in my example (not looking at taxes) in a liquid account somewhere, you will be paying a lot more over the life of the loan. That’s the cost of borrowing more for longer.

            The monthly payments don’t go down but the interest you pay over the life of the loan goes down a lot.

  44. Financial Freedom man Tim NYC
    June 4, 2013 at 1:23 pm

    The only reason I beleive anyone should be making extra payments is if they lack the self control while generating the “one large chunk” and use that money for other things over time. It does take a more responsible person to not touch that account for any unseen emergencies or wants. I for one have only just started that “one large chunk” account and so far so good. I currently owe 375K on my mortgage from 475K purchase price at a 3.25% fixed 30 year mortgage. My goal is to have wiped out my mortgage in 11 years when I am 45, before collecting a pension from my law enforcement career. My main question still is where do I put this “one large chunk” account and try to generate any interest better than a liquid account? If I put this money and keep re-investing in Bonds, do you think thats a safe bet to generate a little interest without any risk?

    • Adam
      June 8, 2013 at 10:39 pm


      How do you propose they make the 4.5% to not lose money in my example? I think you are asking the same question as me…it makes sense if you can beat that magic number…which seems pretty dang hard if you are not willing to take huge risks!

  45. GregMc
    June 6, 2013 at 1:21 pm

    I’m thinking of it this way. Sure, rates are good now but in 15 years? 10 years? 5 years? I’ll feel a lot better owing less money if the rates suddenly shoot to the moon. Might not be the shrewdest investment strategy but, yeah, it’s a lot of peace of mind. I also like the idea of early partial retirement because I don’t have a mortgage payment to make.

    • Johnny Moneyseed
      June 21, 2013 at 5:23 pm

      Do you have a variable rate mortgage? If not, then what do interest rates matter?

      • Grace
        June 21, 2013 at 6:21 pm

        Interest rates will matter when you go to refinance every 5 years.

        • Johnny Moneyseed
          June 22, 2013 at 10:00 am

          If you refinance every 5 years. Once you have a good interest rate you shouldn’t refinance to extend the life of your loan. Even though you have smaller payments every month, you’ll have a longer obligation, which isn’t a good thing.

          • Grace
            June 22, 2013 at 10:31 am

            That is how we do it in Canada. I have a 25 year mortgage to be refinanced every 5 years. i don’t think we have much choice. It is good to get things paid off too.

  46. Financial Freedom man Tim NYC
    June 9, 2013 at 12:10 am

    Hey how’s it going Adam,
    “See my earlier example…to pay in a lump sum, saving $250 a month, will cost you an additional $37,773 on a $250K loan VS paying the $250 every month!”
    How will you be paying an additional $37,773 on the loan if you do not pay the $250 extra each month? You can also accomplish the same goal of paying the mortgage off quicker(saving in your example the same $37,773 in interest) by saving that same $250 in your own account until you can pay the loan in full. In my opinion you do not need to give the lender your money until your ready to satisfy the loan in full. The only way you can lower your principal is to refinance or pay off the loan in full.
    As for the 4.5%, id love to know where I can invest my lump sum mortgage payoff account into anything that can generate something more than a regular savings account/cd…haha…if you can invest this payoff account in something safe you will actually be beating that same $37,773 in your example saved from interest paid when your mortgage is satisfied. Id even be content with 2-3% and don’t forget the compounding effect of reinvesting monthly over the course of time until your ready to wipe out your mortgage. One other thing to note is this account is yours to be utilized in the case of an unseen emergency/disaster that one might have gone for a home equity loan. I am not sure I even responded correctly to what you were actually asking? If not elaborate and Id be more than happy to respond.

  47. Adam
    June 9, 2013 at 2:21 am

    Hi Tim,

    The extra money on the loan is from the interest cost you are incurring by not paying it down quicker: you are borrowing more money for a longer period of time.

    The concept is, the earlier you pay down the loan, the more you will save because your interest costs will be lower. It’s just like putting in a bigger down payment really. This I’m sure you already know, just being thorough here (more for my own good).

    To calculate the $37,773 first you calculate the $250 extra each month with Bankrate’s calculator and look at the total interest costs for the loan. Then you take that final payoff day and calculate how many months you were paying back the loan.

    Multiply the number of months paying back the loan by $250 and factor in the rate you’d expect to get in something safe with a savings calculator; a rate of say 0.9% which is the best you can really do in a liquid account, and that’s very optimistic, based on today’s rates (WAY over the average).

    Now with this number re-calculate the mortgage with Bankrate’s calculator with $0 additional each month. Look from the bottom up, and match up when your “money saved” number from immediately above matches or exceeds what’s left on the loan – that’s your payoff month. Subtract the total interest paid as of that month from the total interest paid if you did $250 extra each month, and you have the cost for keeping your money outside your mortgage (caveat: no taxes figured in, but they wouldn’t cover $37,773 anyways).

    That logic seems good to me unless I’m missing something. Please, feel free to run the numbers and verify! :)

    Thanks for your help in understanding this!

  48. Damon
    June 9, 2013 at 11:15 pm

    Here my situation. 30 years old. Bought house in May 2011. paid 20% down on a 216.5k house so mortgage ended up being 173.2k for 25 years @ 3.78 for 5 year fixed. Was fortunate to have some money saved up and I can put up to an additional 20% of my 173.2k without having to pay a penalty which works out to be 34.6k a year on top of my weekly payments. I put the full 34.6k down in 2012 and this year as well. Can’t find the original ammoritization charts I had from when I bought the house but in sept 2012 I was paying 103.65 principal and 119.35 interest weekly. Since then I put the 34.6K X 2 onto the mortgage and now I pay 155.59 into the principal and 67.41 into the interest. So by putting those 2 big lump sums i’m putting an extra 51.94 into the principal each week. That’s an extra $2400 going onto my principal for the year. It beats keeping all that money in a savings account. I know my situation was a little unique, most people can’t afford to throw money down like that in that short of time. I doubt i’ll be able to do that again for awhile but I still have enough savings to live within my means for the time being even though i’m unemployed at the moment. The biggest thing I think is do what you can do within your means, I don’t have steady employment so I would rather be able to get @ my money when I need it rather than investing even though in the end its making next to nothing sitting in the bank. Peace of mind is a beautiful thing sometimes. My principal is now just over 90K on a 215K home in only 2 years so very proud of that. It’s nice to see that interest payment drop. Who knows what the rates will be like in the future, hopefully they’ll stay low but who know. Also to whoever said they will have their mortgage paid off @ 26 very well done. I know alot of people your age and older who have next to nothing to show for their time here.

    • Johnny Moneyseed
      June 21, 2013 at 5:28 pm

      That’s great that you’ve been able to pay your mortgage down so quickly and that your balance is currently at about 1/3 of the original price. I have two questions: 1) Wouldn’t it be more beneficial to have that money in savings/investments, instead of making it illiquid by paying it into your house (especially because you’re now on unemployed) and 2) I would never suggest to someone that they keep that much money in a savings account. That’s what the stock market/bond market are for.

      • Adam
        June 21, 2013 at 5:32 pm

        It would cost him a lot of money in the current market considering he’d be making nowhere near 6% in any liquid accounts!

        I’d love to see someone do some math in here, verify what I had calculated previously to be the “cost” of keeping your money liquid assuming the current market.

        • Johnny Moneyseed
          June 21, 2013 at 5:47 pm

          Wouldn’t you imagine after a certain point, like when mortgage rates were as low as 2.68% fixed for 15 years, it would have been more beneficial to refinance and get away from the garbage variable crap? The second 20% downpayment should have been in conjunction with re-closing on the house.

          • Adam
            June 21, 2013 at 6:05 pm

            I think I responded to the wrong post…where did I come up with 6%? I meant 3.78%. But the point still stands, nowhere to make 3.78% in a safe place that’s liquid currently!

            On the refinancing, I totally agree, variable = bad. On some of the others posting here, wow, didn’t know Canadians had it that bad regarding mortgages! Forced ARMs…no thanks!

          • Johnny Moneyseed
            June 21, 2013 at 6:08 pm

            I was thinking the same thing. Sorry Canada. Eh.

  49. John
    June 10, 2013 at 1:26 am

    If you have a mortgage you can not call yourself debt free. So sorry, you are not debt free even though you have no other debts. An obligation for 30 years, is still an obligation, even if its “nearly free”

    Second, once you are contributing enough to a healthy retirement, have significant savings, and great investments, paying off the house is the next step in the big boy club. Consider it diversifying, especially if a lot of your retirement savings is actually in stocks.

    Third, All the millionaires that I know (not a lot, and you’d never know it a la millionaire next door) have their primary residence paid off. I would rather be like them.

    Forth, Paying your mortgage off early gives you more freedom to do things like start a business or travel. These things can be much more rewarding both spiritually and financially. If you wait to do that until you are older for fear of not making a mortgage payment your chances are much less.

    My oldest kid will be 12 when we pay our mortgage off in 1.5 years. I will then have 6 years of real debt free living before she graduates high school.

    I don’t think there’s a wrong way or a right way about this. Its up to the individual. For you it makes sense to not pay it off, I’m cool with that. For me, its been a unifying mission for our family and really brought us together working on a common goal. Wouldn’t have it any other way.

    • Johnny Moneyseed
      June 21, 2013 at 5:31 pm

      I plan on having our mortgages paid off by the time our oldest daughter is 8 (when I retire). I don’t want to keep a mortgage longer than I have to, but I’m not going to make any overpayments until I can pay the damn thing off entirely. I want to have capital available to me, instead of tied up in a house.

  50. Lorna
    June 15, 2013 at 12:49 pm

    Ok, Let me try this again, sorry,
    For me, I am a novice property owner and now that I am close to paying off my house I wonder. I have been just laidoff but want to know what’s best. Here are some “small numbers” for a little left in pocket;
    I actually had my mortgage through the HUD program of 3 loans at 5%. With only 9,500 left to payoff roughly on the last loan. I want to pay it off but afraid of what looks like the property tx and not sure about mortgage ins. would be. Either more or about the same. Total tax shows w/homestead credit is 2691.
    $332 is now my mortg with hardly nothing going to princ due to money spread out across loan.
    My asses’d prop. is at $113.
    My mortg Co is paying 808. annually for real property tax.
    Escr 1073.
    Should I just payoff and what will I need to have (pay for) other than prop tax for my home?
    Thanks all you pro’s

    • Johnny Moneyseed
      June 21, 2013 at 5:37 pm

      You should just have to pay homeowner’s insurance and taxes. If I were you and the balance is so low, I’d pay the damn thing off.

  51. Nightvid Cole
    June 15, 2013 at 2:23 pm

    What about the fact that home equity is often a privileged asset class that is better protected if you ever lose a lawsuit? And in the US, home equity is not counted if your kids apply for federal grants for college, whereas if you put your money in stocks or something, you will be expected to contribute more. So surely even at 3% rates there is a case to be made for making extra or larger-than-required house payments as opposed to investing all your spare cash, once you have at least 6-12 months of living expenses saved? By putting it into home equity you get better treatment by the laws.

  52. Lone Star Brit
    June 18, 2013 at 9:27 pm

    My question is fairly straight forward (famous last words hey)…
    I have received a commission from a large business transaction in the sum of $410,000. I owe basically $350,000 on my mortgage; do I pay it off in one swoop? I have 27 years of my mortgage remaining.

    Appreciate your expertise folks

    • Andy
      June 18, 2013 at 10:33 pm

      Heck yes pay it off, NOW! And see my briliant comments above.

    • Johnny Moneyseed
      June 18, 2013 at 10:37 pm

      There’s no simple answer unfortunately. There are a couple of ways to look at it. The first, you pay it off and you live mortgage free. Your only cost of homeownership would be taxes and insurance from then on. That would save you about $1,500 a month depending on your current payment. If you have a low interest rate (less than 4%) you could invest all of that money into bonds that yield 4% annually, which would payout around $16k/year. You could then use that to pay your mortgage. The principle balance would remain untouched and you would essentially not have a mortgage payment to worry about.

      I would recommend paying it off. Then you don’t have to worry about it. The money you were paying to your mortgage can now go into investments instead. Ultimately, its your decision to make, though.

      • Adam
        June 24, 2013 at 11:32 pm

        Which bonds are paying out 4% annually? Junk bonds?

        The pink elephant in the room is that currently there is no safe way beat the interest rate on your mortgage. It puts it all up to the risk factor you are willing to take. It’s not so cut-and-dry as “Well just put the money into X and make 6% instead of paying out 4% on your mortgage!” No where to get 6% without taking pretty major risks.

        Johnny what is the “cost” of not making additional mortgage payments? What would your return need to be to beat out paying down the mortgage? And how do you recommend getting that return?

  53. June 20, 2013 at 5:33 pm

    Clearly many people have strong feelings about paying mortgages early. I added my own commentary to the mix on my site:

  54. Jolene
    June 20, 2013 at 6:05 pm

    In Canada, mortgage rates are not locked in for 30 year terms. Most mortgages are 3, 4 or 5 year terms. The odd bank may offer a 7 year term and if you’re really lucky, you MIGHT get at most 10 years. Obviously, the longer the term that you lock in, the higher the interest rate.

    In addition, there is no tax deduction on interest payments like there is in the states. I understand Moneyseeds explanation that inflation will eventually outpace the 30 year locked-in mortgage rate that he is paying, so it makes sense to just make the scheduled payments. However, as mentioned above, Canadian mortgages are for much shorter terms. When my mortgage term expires in 2015, the new rates that will be available to me will have increased (or decreased, as the case may be) to keep pace with inflation. At best, I gain 2-3 years of an interest rate that is lower than inflation, and then I get hit with a higher interest rate and higher payments.

    Assuming that a (Canadian) person has no consumer debt, has an adequate emergency fund, and is maxing out their retirement contributions (18% of earned income in Canada), prepaying over time on your mortgage makes sense in my book.

    • Johnny Moneyseed
      June 21, 2013 at 5:35 pm

      30 year fixed interest rate mortgages are one of the best things I can think of. Canadians should lobby for a change as far as the 10 years or less lock-periods are concerned. For Canadians, I’d say prepay, especially if the rates start going up like crazy.

  55. Dan
    June 24, 2013 at 10:14 am

    The concept of present day personal finance is different for the average American that is heavily in debt. I would argue the problem is the spread of interest gained versus interest lost; it’s the spending behaviors associated with poor money control. As others have noted, your math only works when all things are constant and that money gets invested. To say Dave is out of touch with the common folk is a far cry from reality. His system actually works for an average person who has consumer debt, it takes into account their poor financial behavior and tendencies to spend. I believe people who are in a position to pay off a house early will have a certain degree of financial control, however, few have the discipline to put the money to work and cash in on a spread. Then there is the problem with having a bank own a note on your home. You lose certain controls over it, especially when it comes to things like repairs and insurance payments. Lastly, since money is owed on it, you don’t really own it, rather your are paying someone else to live there until property interests are released. I also disagree with the fact you are stating it is a liability. This is common knowledge and proven to be untrue. It’s no different from calling a gold bar in your safe a liability because you do not intend on selling it. It is more of an unrealized asset than anything else.

    • Johnny Moneyseed
      June 24, 2013 at 9:23 pm

      I will admit that a gold bar in a safe would be considered an unrealized asset, because you can get rid of the thing and turn it into money and not have to worry about owning another gold bar. When it comes to a house you’d sell the thing, just to have to pay to live somewhere else. It’s a liability. Houses don’t appreciate the way people think they do. I had a kid at work tell me he’s making $30,000 from selling his house because he owes $245k on it, and he’s selling it for $275k. The problem with his math is that he paid to live in it for 3 full years, along with the added touch of inflation, he is virtually getting nothing in return. People have this crazy notion that their houses are going to be a valued asset, and without at least renting the damn things out just turn into a liability because they don’t generate any money. That’s what an asset is!

      Owing money to a mortgage company with an interest rate of 3-something% is like having an interest-free loan (because it closely resembles inflation). Why would you force-feed money against an interest-free loan? That’s absurd!

      The last thing is that I’m not very concerned with people that don’t have the discipline to save or invest their “extra money”. The purpose of this site is to help people retire early (like in their 30s). There is no room here for people who refuse to help themselves out. For those that want to be better with money, or who are good with it but are looking for someone who is trying to retire 30 years before his peers then they’re in the right place.

  56. Bodi
    June 26, 2013 at 3:14 am

    Hi Guys,
    What would your advice be for people in Australia (primarily Perth, Western Australia). In Perth, average house prices are about $500K (AUD). Interest rates are hovering at about 5.3% which is extremely low here. Interest on my home loan is about $3K per month.

    My initial thought was to dump as much cash onto my mortgage as soon as possible to get it paid off.

    Most of the posts on here suggest the contrary, however I am thinking this is because of the lower house prices and interest rates in the US.

    One benefit of paying off my mortgage as soon as possible is that I no longer need to make weekly repayments. For me, my repayments are $600 p/w and thus I would much prefer to be saving this than paying it to a bank for 30 years.

    Your thoughts?

  57. June 28, 2013 at 11:53 am

    Interesting perspective. You may consider amending the post to avoid detractors from picking at it. For one, Ramsey is clear that to not following every aspect of his plan can be very dangerous. You basically point this out, but in a way that it isn’t clear that you are in agreement with him.

    “The people who choose to put all that extra money into the house will just owe less on their principle balance. It won’t change their monthly payment, and in a financial pinch they’ll still have to keep making payments without that sweet cushion.”

    His plan never instructs you to put “all the that extra money into the house,” instead, as soon as you finish funding your 3-6 month emergency fund, you should start investing 15% of your income into retirement, before you spend an extra $1 paying off your mortgage.

    Speaking of the emergency fun, your “sweet cushion” point is less potent if someone actually have 6 months worth of expenses in savings.

    • Johnny Moneyseed
      June 28, 2013 at 12:06 pm

      Right, but it still doesn’t make sense to pay off your mortgage early, unless you have enough set aside to pay it off in full.

  58. Laura
    June 29, 2013 at 1:41 pm

    The smart thing to do when buying or refinancing is to immediately pay an extra principal mortgage payment and again every year after on the anniversity of the mortgage. The first ten years is when you’re paying back the bulk of the interest to the bank, and if you can afford to pay whatever extra $ too. You WILL shorten your thirty yr mortgage and shave thousands off your interest. Then after the tenth year just go back to your regular monthly mortgage payment. Then take your extra monies and invest them or save them. By doing this you will have paid down mortgage faster and saved a bundle on interest, but you dont have the stress of making payments every two weeks towards a bi-weekly, if you can’t afford the bi-weekly or deal with the bi-weekly payment stress. Remember with the 30yr, monthly, you have 30 day to 44 to make a payment (without penalty) which is helping out a lot people right now. And this this a good plan if you DONT plan on selling your house in five,7, or ten years.

    • Johnny Moneyseed
      June 29, 2013 at 3:42 pm

      Why is is a smart thing to do to make one extra payment a year? Sure it will reduce your total interest over the life of the loan, but what good are you really doing? Why not just throw that money into an investment account straight away to give it over a decade to grow? I don’t know why you’d wait until you’re 10 years into a mortgage to start investing. That seems even sillier to me than making extra payments on a mortgage with a super low interest rate.

  59. Dave E
    July 1, 2013 at 7:11 pm

    I enjoyed reading the article and would appreciate it if you have time to address my question. One thing that I don’t think is being taken into consideration is the extra money you will have to save or invest after the mortgage is paid off early. A lot of what I read on this subject only addresses the years leading up to the date that the house is paid off, but not what you can save afterwards. The argument is typically that you can make more in the stock market if you take the money you would be using to pay off your mortgage early and invest it. The way I see it is that if you are already saving for retirement, investing in stocks and have a healthy rainy day fund, paying off a mortgage early is a great way to reduce your liabilities and increase your net worth. If you can reduce your 30 year mortgage to 20 years by paying extra month-to-month, you are able save 10 years of mortgage payments later down the road. For me, the peace of mind of owning a home outright, and being able to save much more money later down the road is just as attractive as making potential gains and worrying about losses in a volatile stock market. What are your thoughts on the money saved after a mortgage is paid off early versus investing the money that you would use to pay off the loan?


    • Johnny Moneyseed
      July 1, 2013 at 8:22 pm

      Dave, the thing that most people miss when they think about prepaying their mortgage is the compounding and growth that you could achieve through investing. While it’s great to actively invest while you’re paying down your mortgage, why not take the “extra” money and stick it into something that could grow? You mentioned the “volatile” stock market, and I think it’s pretty obvious that most people see the stock market as a scary place every time it starts to drop a little bit (or a lot), but if you’re actively investing in index funds through the bear markets and recessions, you’re going to end up wayyyy ahead once the market rebounds (and the market always rebounds).

      Let’s say you have an overage of $1,000 monthly that you can either apply to the mortgage or invest. Your mortgage is $350k and has a 3.5% interest rate. Hypothetical, of course. You can cut the life of the loan in HALF. So now you can take the original principle/interest payment ($1570) + your overage ($1000) leaving you with $2570 of extra money from then on out, or to invest or whatever. Mortgage free, yay!

      But what if you just made the minimum payment every month and invested that extra $1,000. After 15 years, you’d have $312k in investments, assuming a 7% annual growth (this is the actual market average!). Here’s what’s more interesting: If you carried out the behavior of investing the extra $1,000 and let it grow for 30 years, you’d have OVER A MILLION DOLLARS. Peace of mind, and paying down a liability isn’t worth a million bucks. What do you think about that?

      • Shepp
        July 18, 2013 at 10:46 pm

        Very interesting, my head is spinning from the ‘what if’s” So….here’s mine….What if you currently have a FHA 30 yr mtg @ 5% . If I had a nickel for every piece of mail wanting to refinance with them to lower my rate, also the answering machine messages, they all say “Hurry..No closing costs…etc”. It all sounds good, but, something tells me no. Guess I missed the 2.5 or 3.5% Conventional boat. 1st scenario.. I want to retire in 4 years, I would love to lower my FHA $156K mortgage to something comfortable. We have a small investment fund and I’m contributing 15% to my 401K. Would it make sense to keep the15% contribution going to the 401K, allocate $500 a month to the investment fund, then, in 4 years see what their balances are and pull out all or what is needed to pay off the house *or* at least pay down the house? 2nd scenario…would it be feasible to find a conventional loan for 30 years at the current rate of 4.3%, then take all the money out of the investment fun to pay down the $156K balance to something around $115…at least something that would be comfortable to pay every month after retirement and for the next 30 years…. Or is this wishful thinking?

  60. July 1, 2013 at 9:31 pm

    I’ve been receiving the follow-up comments via email and find these comments interesting. The question of paying off your mortgage early is a topic on almost every finance board, blog, newsletter, financial magazine, etc. that I have ever seen or come across.

    I think it boils down to what the person with the mortgage is most comfortable with, the peace of mind of having a paid off home or the ability to leverage the home for possibly more money. A little bit of risk vs safety, CD/bond investing to stock investing.

    A common question comes up on some of the finance boards with this topic, it goes something like this: “if you had a paid off home, would you take a mortgage on it to invest in the stock market?” I know that is not exactly the same as paying your mortgage early, but my answer would be hell yeah!

    I believe in dividend growth investing, if I could get a mortgage on my paid off $250k home for maybe $100k at 3% interest rate, I would do it in a heartbeat, invest in some dividend champions or contenders to earn 5%. I would then pay my mortgage monthly while watching my portfolio grow, keeping up with dividend growth, over time my dividend steam would keep growing, but my mortgage payment would be the same. So what if the price of the shares fall 20%, as long as the dividend continues to grow, it doesn’t matter.

    Unfortunately I cannot do the above because I do not have a paid off home yet, but I can do something similar, instead of putting 3-4-5 hundred more into the mortgage payment every month, I can put that in my brokerage account, purchase the dividend growth companies that I want, then watch it slowly increase over time. What happens when the two balances, reach the same amount? Nothing, I can make more money continuing the dividend growth investing that I am working on keep paying the mortgage at my low fixed rate.

    • Johnny Moneyseed
      July 1, 2013 at 9:51 pm

      This guy gets it! The only way I’d pay off the mortgage early is if I was retiring. Otherwise, I’ll keep the big mortgage at a low % and invest the ‘extra’.

      • Andy
        July 1, 2013 at 10:01 pm

        Johnny: what about my point above about moving every 5 or 8 years, and starting fresh with a new 30-year loan? One’s effective interest rate is much higher than stated in those situations. What’s your response to that point?

  61. Joe Stak o' Donuts
    July 17, 2013 at 11:10 am

    Awesome thread. Curious as to what you’d do in my situation. I’m 3 years into my 30 year (4.80%) loan. I do invest… 6% of my income into a 401k (pre-tax), another $1000 per month into retirement (after taxes), $100 per month into both of my children’s college funds (ages 1 and 3). I have about 100k left on my loan. I’m pretty frugal and my bank account grows pretty rapidly. I like to keep at least 10k in my checking account, just incase, and once my account hits 15k, I throw that 5k over to my financial advisor. Would it make sense to use that surplus against my mortgage, since I’m already putting so much towards retirement? I could probably pay off my mortgage in about 2 years if so. But… We may decide to move in the next 5 years or so. Thoughts?

    • madhome
      July 18, 2013 at 6:03 pm

      Do not pay off your home if you are unsure about moving. If you do not pay off your loan and If the housing market is down and you guys decided to move you can foreclose your home and still have your money. If you pay off your home and have to move then you have to sell and take the lost.

      In the case that you decided not to move then do not pay off your loan if you are comfortable with investing.

  62. madhome
    July 18, 2013 at 5:51 pm

    Johnny Moneyseed has advance financial knowledge. He’s probably comfortable with investing and is disciplined with his money. While paying off your home works for most people, i want to pay my home as slow as possible given a low interest rate. The less i pay the more i get to ***leverage*** the bank money since there are many ways to earn more than 3.5% per year.

    1) Invest in a fund that trails the S&P 500 which average yearly gain is more than 8%. Some people said that investing is risky, well, the S&P 500 consists of the top 500 companies in the US. If these companies go under then forget about our home, our job, or our saving; pretty much everything in the U.S. will become garbage, except gold. Pretty safe bet here.

    2) Buy investment homes. I saved up my extra money and used it as down payment to buy a second home and eventually a third home and then rent them. The key is to get the rental incomes equal or more than my mortgages. Right now someone else is paying for my home and the interest. As time go by i raised the rent and i now earn around $300 per month for both of my rental homes. Sure i can use these $600 extra toward paying off my house but i rather invest it in the S&P 500 and able to withdraw at anytime in the case of emergency as stated above by Johnny and others. What if the housing market is down? Well it still work because when people foreclose their homes they will have to rent and that’s when rent is higher. Home price only matter when you sell or buy but when you rent then only income and expense matter. And since my monthly payment is low and I have extra money I can actually afford to wait until price is up. Below are the benefits of not putting extra money in my home and buy rental properties.
    I get to leverage the bank money – I down 10%-20% for my homes so my money works 5x-10x harder for me.
    Some one else is paying – I have 2 homes that renters are paying for. In my opinion this sure beat trying to pay off one home early. Even if home price never go up i will still profit because someone else is paying but the home that will be mine and i pay nothing except for the down payment.
    Monthly income – I earn $300 monthly for each home but this number is increasing because i raise the rent to adjust for inflation while my monthly mortgages stay the same. This number will eventually equal to the mortgage for the house i’m living in. When this happen i will pay $0 monthly for all 3 homes.
    Profit when home price is up – When home price is up i get all the profits. And since i own more than one home i actually can sell one or two and still have a home to live in.
    Safety against job lost and market crash – Since i have extra money outside instead of putting it my home I’m safer and actually have extra money to pay my mortgage when the market crashes or when i lost my job.
    A chance to be financially independent – If things keep going as is i will become financially independent in 9 years (no need to go to work). I don’t know if I’m debt free but I do not have credit card debt or car payment.
    Tax benefits – Everyone knows this one.

    This is just one of many ways to build wealth instead of just paying down your home. But if paying down your home early work for you then that’s great too.

    Good luck everyone

  63. Shepp
    July 19, 2013 at 6:46 pm

    I posted wrong, I’ll try here…my head is spinning from the ‘what if’s” So….here’s mine….What if you currently have a FHA 30 yr mtg @ 5% . If I had a nickel for every piece of mail wanting to refinance with them to lower my rate, also the answering machine messages, they all say “Hurry..No closing costs…etc”. It all sounds good, but, something tells me no. Guess I missed the 2.5 or 3.5% Conventional boat. 1st scenario.. I want to retire in 4 years, I would love to lower my FHA $156K mortgage to something comfortable. We have a small investment fund and I’m contributing 15% to my 401K. Would it make sense to keep the15% contribution going to the 401K, allocate $500 a month to the investment fund, then, in 4 years see what their balances are and pull out all or what is needed to pay off the house *or* at least pay down the house? 2nd scenario…would it be feasible to find a conventional loan for 30 years at the current rate of 4.3%, then take all the money out of the investment fun to pay down the $156K balance to something around $115…at least something that would be comfortable to pay every month after retirement and for the next 30 years…. I also forgot to mention I have another house, now a rental with a mortgage.
    I’m leaning toward scenario 1…it’s just the unknown for the next years that is unsettling.

  64. Phillip
    July 30, 2013 at 3:53 pm

    Johnny, thanks for this insightful post. Here’s a twist on the topic for you: my wife and I are considering moving from an city that we like fine for now but can’t see ourselves “growing old” in to another in which we could. But….the neighborhood we want to be in would require us going from a 15-year mortgage to a 30-year…Worth it to be somewhere we’d rather be for the long haul, or fiscal suicide? Thanks in advance for your commentary. (Oh, a little more info, I’m a writer so can live anywhere with a wi-fi connection).

    • Johnny Moneyseed
      July 30, 2013 at 9:41 pm

      Well it sounds like the new place is going to be way more expensive than your current place, otherwise you’d be able to still go with a 30-year. My response to that is wait. Don’t buy too much house too early. If you can work anywhere, why would you live in a place that’s going to kill you financially, like you said?

      I’m not really into the living in a place because it’s cool kinda thing, so I don’t understand that mindset. Home is where you make it — but also, I have almost no experience living in a big city.

  65. Home owner
    July 31, 2013 at 8:42 am

    i have a paid off mortgage and I love it

    • Johnny Moneyseed
      July 31, 2013 at 1:59 pm

      Cool. I wish I that I was in that boat. Someday!

  66. EffJay
    August 2, 2013 at 9:49 am

    I liked your article. However, it entails discipline in investing which i struggle with. I’d like to learn about your big boy techniques as well. Please advice.

  67. August 5, 2013 at 10:24 pm

    Sorry, but while the logic seems there, the short and long term effects of dragging out a mortgage make no sense whatsoever. You talk about paying only 3.5% interest but fail to conider that you are paying that interest on a $200,000 loan to the tune of $10,000 and more per year! Are you making that kind of money on your INVESTMENTS? I doubt it! You would have to have $200,000 invested at beter than 3.5% to do that. Remember, over the course of your mortgage you are paying $200,000 or more in INTEREST to a bank and I know for a fact that MOST PEOPLE have no discipline at all to save and invest. Not in North America anyway. So paying down a mortgage by automatic debit with bi-weekly payments with extra lump sum payments when you can to zero out that mortgage in 5-8 years is FAR SUPERIOR to any imvestment you will make in that 5-8 years. This will be true for maybe 90% of people and not true for maybe 10% who are smart and disciplined enough to go the investment route.

    • Johnny Moneyseed
      August 6, 2013 at 7:17 pm

      Read through some of the other comments. I don’t care if people aren’t adult enough to save money. I don’t write for those people. I’m going to create a graph that displays this principle in a way that even you can understand buddy.

  68. Mark
    August 8, 2013 at 2:05 pm

    Johnny,you are so wrong in you’re figuring, here is a calculator to try and help you figure out the easiest method to save money it is very obvious that if you make early payments your principle goes down more rapidly saving interest in the long run. You cannot compensate for this savings in a bulk payment at the end! On $180,000 loan, pay $633 extra, in 156 months you will save $32,000 versus bulk-payment. Your extra payment of approximately $7600 per-year will save you Approximately $2,280 per year on the $32,000 Approximately 28% profit on your outlay! $83,000 over life of 30 year loan! Here is a link for you Johnny!

    • Johnny Moneyseed
      August 8, 2013 at 2:11 pm

      Mark — I’m definitely not wrong. I’m doing a revised version of this post that I should be publishing tomorrow. It has facts, figures and pretty graphs.

      You can look at it like this: You could over-pay by $500/month or invest $500/month then look at how much you have at the end of 30 years. Long-term averages of the stock market are around 11%, or 7% adjusted for inflation. It doesn’t matter how much money you pay in interest on your mortgage, as long as you having the same earning percentage or higher than your mortgages APR. Your mortgage’s interest is simple interest. Your investments are affected by compound interest. There is a huge difference. Why would you put all of your money into a simple interest account? Does that even make sense?

      • Andy
        August 8, 2013 at 3:34 pm

        Johnny: Please make sure that your pretty charts and graphs account for the fact that people move, on average, every 5 years. If you want to be conservative, say every 8 years. As you and I have previously discussed, this is relevant because most people have 30 year fixed loans, in which interest is heavily weighted to the early years of the mortgage. By moving as frequently as we Americans do, the real, effective interest rate we pay to the Banksters is actually much higher than the interest rate stated on the loan. This fact alone refutes your argument that it is silly to pay off a mortgage early, unless a person knows he will never move. Can’t wait to see your fancy charts!

      • Adam
        August 8, 2013 at 4:25 pm

        Johnny the “pay it off all at once” is a bad idea because you are assuming the markets will be up when you go to pay it off! I mean if they are, fine. But that’s a huge assumption. You don’t know if they will be.

        I get putting the money in for the super-long-term, but the “wait ’till you pay it off” is a bad plan for sure.

        Either pay it off piecemeal where you are guaranteed to make the return on the interest of the loan, or put it away for as long a term as possible, and don’t rely on being able to withdraw the money.

        • Johnny Moneyseed
          August 8, 2013 at 5:56 pm

          Right, but this is just a side by side comparison of the same money spent in two different ways. I wouldn’t recommend waiting until your house was paid off to invest. That would truly be silly.

  69. Mark
    August 9, 2013 at 10:42 am

    Johnny, since most of your interest is paid off in the beginning of your loan, take a 30 year loan and pay it off in 12 to 14 years do the math the interest saved is phenomenal. You’ve taken your interest for a 30 year loan and cut it down to one third. Saving tens of thousands of dollars if not more depending on the loan. As stated in my prior post, $7600 is per year accumulated to 14 years is $98,000 this is not $98,000 all at once. That is $7600 year one $7600 year two and so on accumulating two $98,000. pay off at that point would be $132,000 versus 98,000 paid extra over 14 years. This is a secure way of securing 28% annually on your $7600 layout each year!

  70. Mark
    August 9, 2013 at 11:01 am

    Johnny, I do understand that if you invest 7600 each year and get 10% interest accumulate over 14 years adding you can have over $76,000 in interest. You are banking on the market, it is not secure, I will only make half as much but I will make it for sure. And my home will be paid for! So at the end of 14 years I could have an extra approximately $35,000 in my pocket or I could have nothing at all

    • Johnny Moneyseed
      August 9, 2013 at 12:33 pm

      I’ll agree with you here. The thing is though, if you’re investing that money every single month you’lre going to reduce the volitility of your investments. I welcome dips in the market, because I know that’s going to make me more money in the long-run. And, once you’re ready to retire you can shift everything towards the bond market (which has been paying more than 3.5% recently).

  71. jim
    August 11, 2013 at 1:00 am

    I used to think we should stock pile enough cash to pay off our mortgage and we did start doing that – the only problem with that was kids, things started eating into our savings so we didn’t really save it all. so we switched and are now paying off our $1300/month mortgage at the rate of $4000/mo. Guess what, we’re under $99,000 now ’cause no one and no thing could chip away at what we had already paid. When that baby is paid in full in 2 years, we’re going to be damn glad that it is and there’s no looking back. Just do it – get that damn mortgage out of your lives.

  72. Mark
    August 11, 2013 at 9:00 am

    Johnny, your theory is correct based on the best scenario given, as no one can predict what will happen tomorrow it’s called gambling. Never gamble what you can afford loose is the rule! A full bird in the hand or a chance of only two in the bush. There are plenty of high finance, diversified portfolios in the soup line, But they too had it all figured out as the charts and the numbers all matched up! It might be better to be sure you have a place to lie your head before you gamble on your family security.

  73. August 13, 2013 at 12:56 pm

    There is another argument made against you that asks, are you borrowing money to invest it? That’s typically a no-no, although I can see how historically low interest rates can affect the decision.

    No mortgage here, we paid it off ASAP – but we’ll be moving soon and faced with a decision about whether or not to finance a portion of the new house because of the factors you lay out, particularity low interest rates. Will be a toughy.

  74. Ken
    August 13, 2013 at 1:50 pm

    I agree with Jim…and some others. If you have an opportunity to pay your mortgage off and its not money thats in reserves…PAY IT OFF!!! You are always going to need a place to stay. Thats life 101… on the other hand If you have your mortgage payoff amount abundantly and you can afford to invest the money b/c you have a backup plan where you can actually pay your mortgage If you lost a job or otherwise….then I would agree with Johnny and say INVEST your money in lieu of a mortgage payoff in that instance. If you are seeking ER (early retirement) and your mortgage is whats keeping you attached to a job (especially one you are not happy with)…Send as much money on your mortgage PRINCIPAL as possible and followup to make certain that its applied properly….Start counting your exit days from your job into retirement and enjoy the remainder of your life.

  75. Happy Camper
    August 19, 2013 at 2:19 pm

    I agree with Duanes comment 100%

    Pay the house off, it’s yours hell deep and heaven high no matter if another recession comes along or not. And the money you are not spending on a house payment can be used for whatever you want to invest in. That to me is one of the first steps in being financially secure.

    On a fifteen year note and using tax refund or overtime it is very realistic to pay a house off in 7-10 years. The least it does is create a way to have great equity in your house to be able to roll over into a bigger/nicer one in the very near future for the buyer.

    • Johnny Moneyseed
      August 19, 2013 at 2:29 pm

      Yes, but recession or job loss can happen at any time. What happens when you’ve been jamming all of your extra money into your house, and have no cash reserves to pay for the day to day costs of living when you’re jobless and broke?

      I think it’s important to have your mortgage paid off by the time you retire, because at that point you can’t (and shouldn’t have to) deal with a large payment like that. If you’re retiring in 10 years, make a plan to have the mortgage paid off in 10 years. If you’re retiring in 35 years, then you better not be paying off your mortgage early!

      • Andy
        August 19, 2013 at 2:54 pm

        Johnny, your analysis and statements continue to fail to account for the fact that PEOPLE MOVE EVERY 5 or 8 YEARS ON AVERAGE. THUS, THEY PAY MOSTLY INTEREST, then reset with another 30 year note, and pay mostly interest again, and do that again, and again, and again. Then they are 55 and wonder where all of their money went, and wonder why they have not built up more equity! Smart folks pay off their loans early. Unless a person knows they will never move, following the typical cliche advice “oh rates are low and you get a deduction” is stupid. Call me in 20 years and we’ll see who was right on this. I will be making a large payment to pay off my home in full in about 5 months, and will have zero debt.

      • jim
        August 19, 2013 at 8:49 pm

        I think you’re missing a very basic point. Before you start throwing all your extra cash at the mortgage, you have absolutely got to have an ER fund to tide you over in the event you lose your job. Once you’ve done that – screw the mortgage and kill it – regardless of the interest rate. You can “invest” in the market all you want, but take it from someone who has lost hundreds of thousands of dollars, not once, but twice, in the market – you’ll love being mortgage free.

    • August 20, 2013 at 12:56 am

      Well you never truly ‘own’ your home. Just see how fast it will disappear after a few years of not paying property taxes.

  76. J-Me
    August 23, 2013 at 3:02 pm

    I agree with JMS. My goal is to maximize wealth and to invest and not to maximize security and pay off my mortagage.

    • Johnny Moneyseed
      August 23, 2013 at 6:30 pm

      Right, and that’s what all of this is about. I can handle a little risk with the possibility to earn more over time.

  77. Daemon
    August 29, 2013 at 11:26 pm

    It’s a touchy subject. What would you rather have? Potential for your wealth to grow or know that your family has a place to sleep at night, not that I have kids but just saying …. I agree 100% the first thing to have before you consider either of these is having a fund to be able to get by in the hard times. This also depends on people who have “STEADY” jobs vs people who do not. Personaly if I had a steady job I think I would be putting more into investing than on the mortgage knowing that I have steady money coming in. That being said for me I am Canadian with a fixed 5 year mortgage @ 3.78% that I can see going up when it is over so I will be putting money towards it until I can get it paid off and then go the investing route from there as long as I have my “cushion”. When it comes down to it investing is what it is, there is the possibility to make more than the 3.78 but the 3.78 is gauranteed so I can’t find going wrong with something that is gauranteed. Just out of curousity I just looked @ interest rates in the US and it was 4.625% for 30 years fixed. I thought it was much lower not to long ago.
    It will be interesting to see what the rates are when I have to re-mortgae. Hopefully I won’t have to worry about that when the time comes :}

  78. c
    September 8, 2013 at 6:53 am

    Just read through all the comments and it reminded me of an episode of Glligan’s Island. The castaways are offering solutions to a problem and after each comment Gilligan would say,”Mary Ann is right”,”Ginger is right”, and so on.Finally the Skipper says,”Gilligan we all can’t be right”,to which Gilligan replies,”the Skipper is right”.
    I would like to add some food for thought that hasn’t been considered yet.(Actually one poster did touch on it with a future 401k tax comment.)
    No one has mentioned the terrible condition of both the US and global economies.Not just the bad economy,but more impotantly,the possible regulatory policies going forward.
    Examples,Cyprus confiscated a % of savings accounts a couple of months ago.Poland just seized 50% value of all pensions this week.Please don’t think this could never happen here in the States.
    In my humble non-professional opinion,contributing into a 401k in amounts above any company match is an unwise decision.Yes,401k’s look good on paper,but to assume that these government sponsored programs will remain untouched in the future by greedy politicians is just plain silly thinking.
    There has already been open discussions about 401k asset confiscation within political think-tanks.
    I’m a former swingtrader,gambler,and paratrooper,so I am by no means intimidated by risk.However,considering todays economic and political environment,I feel paying down the mortgage is a better alternative over stocks,bonds,csh instuments,and 401k’s.Assuming of course an emergency fund is in place of comfortable size.

  79. Marvi
    September 28, 2013 at 6:20 am

    OMG! do you even know what your talking about????? stop read what you have just written because it makes no sense whatsoever! your talking about not paying your mortgage quicker so you can save money in the bank and make other investments???? so let’s say you save $20,000 per year in a bank that’s earning you 4% interest p/a calculated daily…for what so you can get back a measly $800 a year whoptido! my mortgage is $300,000 my interest rate is 4.69% in a loan of 30years i would have paid $259,104 on interest alone, yup nearly enough to buy another home! this is the most logical solution… pay as much as you can into your mortgage, have a contingency plan/savings in the bank of 3-6months pay….everything else goes to the mortgage your reducing interest and increasing your savings at the same time just not in a conventional way (as putting it in a bank) but the principle is the same thing….when things get rough you can pause your repayments coz you are so far in front, or you can also redraw down on your loan….remember banks don’t want you to pay off your mortgage quicker they wanna keep you in debt that’s how they make money! so they will allow you to redraw and pause your repayments as long as your in front…. or you can use that money as you have equity to buy investment properties or shares and have a diverse portfolio….using yup you guessed in those extra repayments! that’s how i’ve done it so far….i have shares and 2 properties and once i get my tax refund use that money to buy more property all in the span of 4 yrs……and guys and gals… that’s how it’s done!!!!! yes 2 properties (and one on the way) may not sound a lot but i’ve just started investing and I’m not a millionaire!

    • Johnny Moneyseed
      September 28, 2013 at 9:30 am

      You have absolutely no idea what you’re talking about. Why would you use the equity in your home to buy investment properties? Why wouldn’t you just save your money and make a downpayment? Taking equity out of your house is probably the worst thing you can do, period.

      Banks don’t want you to hold a single mortgage through to it’s completion, because after a few years they don’t really make very much money on your. The bulk of the bank’s earnings are from the early years of the loan.

      If your mortgage is 4.69%, your rate is effectively lower than that, because of the mortgage interest tax credit you’ll receive annually.

  80. Marvi
    September 28, 2013 at 6:24 am

    Also after i had paid my mortgage off..i will not close the account i will keep it open for future investments!

    • Johnny Moneyseed
      September 28, 2013 at 9:31 am

      What? Why?

  81. Kym
    October 5, 2013 at 2:19 am

    I’m very intrigued with what you’r saying MS! I have only read about 20 comments but I plan to read more when I awake in the morning. I do have a question though and I know this is veering away from the original topic of paying off your Mortgage…but what about credit cards? I have several that are pretty up there. Could you give me advice on that?

  82. Chris
    October 5, 2013 at 9:30 pm

    For me personally, weekly to monthly extra prepayments on my mortgage have cut down over decades on my amortization period. I am 25 years old, I have purchased my 3 bedroom town house unit(which was newly built at the time) when I was 18. In 7 years of constant attack on cutting down my mortgage and paying if off as quickly as possible, I managed to get the amortization period down to 2.5 years. That is of course, not including the extra payments I will continue to make. My goal is to have this house paid off by the end of 2014. I know my case is rare, because I’ve managed to save up enough for a down payment of the house at 18, and because I’ve continued working full time out of high school as well as renting out the entire house since the beginning, I was able to put so much lump sum payments over the years. As well as having help of my parents and their good credit as my beneficiary in order for me to be qualified to even purchase a house. It depends on people and their situations, whether paying off a mortgage is smart or silly, I wouldn’t go as far as calling it silly downright, you don’t know what the person’s situation is. As far as investments and savings go, sooner you pay off your house and be mortgage free, especially if your house is a rental property that generates monthly income for you, sooner you can use that money to invest whether it’s stocks, bonds, mutual funds, or whatever type of retirement savings plans there are. Of course, not to mention money you make from your job, or business. Bottom line, no matter how you cut it, mortgage free, debt free = stress free, freedom, and more opportunity to invest, and you’re more fit to take risks with your money, money that you don’t have to put into your mortgage any longer.

    • Johnny Moneyseed
      October 6, 2013 at 10:01 am

      Chris — I agree that having less, or no debt, is going to lower your overall stress level, but I think that money could do so much more for you if you choose to invest it rather than pay off your mortgage. In your case, specifically, you could have started investing that “extra money” when you were 18. Most people don’t start investing until their 30s. You would have had an extra 12+ years of market exposure which would have brought so much money in compound interest that it is absurd to think about the money you’ve actually lost from not investing. You could have used that money to invest consistently through the recession. Your money would have DOUBLED. While, it’s fucking awesome that you’re going to be mortgage free in another year or two, your investment account could have been huge had you played your hand differently.

      Congratulations on paying down your mortgage so quickly. I hope you turn your mortgage payment into monthly investment purchases when it’s all paid off.

  83. Rebecca
    October 23, 2013 at 1:35 pm

    Interesting article! I am on the fence about this!! So undecided. My situation:

    Purchased: Aug ’07 $136k @ 7.25%, No $ down, PMI, plus in a shitty neighborhood, I was 19 yrs old – (Tuition at School of Hard Knocks)

    Stream Refi: Aug ’11 $130.7k @ 4.5%, still have PMI

    Current: Balance $125.5k Zillow zestimate: $83k (sad face)

    I’m afraid of throwing money into a sinking ship (underwater). I can’t express how upset I am at myself for making such a rash decision at age 19. I thought it was brilliant at the time. My dad had over doubled his money on his house – bought for $70k, worth about $180k at the height! What an investment! I was naive and now i’m stuck with this heavy weight on my shoulders and no idea how to lift it!

    • Johnny Moneyseed
      October 23, 2013 at 1:49 pm

      Rebecca — I don’t think a house should ever be looked at as an investment, unless your goal is to rent out the property. 9 times out of 10 a house is actually a liability, because like you said you keep throwing money into it. But who cares if it’s underwater or what Zillow’s price estimate is for the property unless you’re selling. My house could be worth $150M, but unless I sell it I’m never going to realize those gains.

      You’re still at a bad place in the fact that you’re still paying PMI. Once you’re under $101k, the PMI should be automatically removed from your payments. Instead of worrying about the value of the property, try to figure out how you can get your mortgage balance down to around the $100k level or less.

      • Rebecca
        October 27, 2013 at 11:03 am

        I know that Now. I wouldn’t say I was really thinking of it as an ‘investment’ per typical definition (to make more money) but I was thinking it would be? a way to avoid ‘throwing money away’ to a landlord. I figured at least I would see this money back when I sell the house eventually.
        Now I realize with all the taxes, insurance, PMI, interest, home maintenance, and the volatility of the housing market that a house is not an investment! And I’m now chained here. I really do regret buying my house, but I want to try to make the best of my situation financially.

        Anyway, so are you suggesting that I throw extra $ at the payments until I get to 20% equity? What if I never get there by the time I want/need to move? Do you think it will have been a ‘loss’?

  84. A guy in London
    October 26, 2013 at 7:45 pm

    Oh my. I stumbled across this rather silly article today. I think it sums up why the US and the UK are both in such a complete and utter financial mess and the message you are giving is that it is silly to pay off your debts as you are free to invest. The gigantic amount of interest people pay even with low interest rates over a long term mortgage is truly crazy. People should be wary that here in the UK the interest rates actually went up to 15% at one point which screwed over many good people in the 90s’. Debt ruins peoples lives and whenever you have the chance to pay off debt you should take it. Those who do not believe this to be the case generally have do not the means or ability to pay it off.

    Large numbers of individuals who thought themselves financially savvy have lost huge sums during the 2008 crisis pretending they knew what they were doing when most did not when it came to investments.

    I have almost paid off my mortgage 19 years early and the satisfaction I get is immense in all areas. The home will be paid off in 6 months. In the last 6 years I have seen my salary rocket as I “invested” in my skills and education learning things that are difficult to master. Essentially I am a free man. All the money I will then make will go into stable long term investments spread over many different diversified areas. (only because I have the real funds to invest)

    You need the money when you are young to spend it on the present life you lead living it to the full not when you are 60 years old and life has passed you by.

    • Johnny Moneyseed
      October 26, 2013 at 8:19 pm

      While you think you’re being smart, you’re actually just acting out of fear of the unknown. Only those who sold their holdings (again, because of fear) lost anything during the 2008 financial crisis. And those that continued to invest wisely (low-cost index funds) through the recession have doubled to tripled their assets.

      It’s all good man, you can pay off your mortgage. I’ve never heard of a house that would pay you dividends for the rest of your life…

      • itsmeagain
        October 27, 2013 at 5:59 am

        Johnny, I think you are looking at things in a rather binary way. The dividends you talk of I have made come from the companies I have ran since 2004. They all made profits based upon my acquired skill and ability and I am not talking about small dividends but dividends equal to about 10 times the average UK salary per year. They will continue to arrive each year based on the supply and demand of the skills I bring to the global market place.

        All the investment in myself has generated the returns to enable me to pay off the mortgage early. Imagine all the investment as you put it I can make between now and retiring and all while doing it without being in debt along the way?

        If you truly believe that investments cannot go down in the short and long term then I honestly think you need to rethink your strategy my friend. It is literally the first rule of any investment book. Check out Benjamin Graham’s old book the intelligent investor often quoted by Warren Buffett arguably the worlds greatest investor. I think the real secret is to seek out the undervalued firms.

        I know many people who have put their faith in the markets and gotten caught out but you will note that in my post that I also stated that I would invest in them in the not so distant future when I am fully in credit and will hedge my investments in many asset classes however this is because of the worsening financial situation that is not fully evident in the US and the UK. I promise you this isn’t out of fear but out of an honest view of reality.

        You guys are getting a taste of things to come when there is squabbling over the debt ceiling. The trouble is debt has become so prevalent in our societies that no one can tell who is truly rich or truly poor anymore as everything be it a house or a car is available on cheap credit. You will see this all dry up very soon as our countries attempt to financial correct the situation. The US and the UK are both effectively bankrupt. This situation will change our view of the world forever.

        Our modern societies are built around debt and it will all come crashing down in due course. It is a mathematical certainty. While you are in debt you are at the mercy of Interest rates and when you are not you wish to seek out jurisdictions that have high interest rates.

        This is a factual account of the world as I have seen it and the decisions I have made have made me quit wealthy already. Many people actually talk about being wealthy but it never really truly becomes reality especially those in debt because if they were so rich they wouldn’t need a mortgage in the first place…

        • Johnny Moneyseed
          October 27, 2013 at 10:18 am

          You can’t honestly read through what you just wrote and tell me that you aren’t fearful. You’re betting on bankruptcy and failure. I bet on prosperity, because the stock market always goes up.

          First, if you have the money to pay off your mortgage, do it, obviously. Second, the money that I’ve used to invest (rather than pay down my mortgage) has grown over 30%, and my mortgage is still at a 3.25% interest rate. Third, (and I’ve said this probably 10 times in the comments) if you’re putting a bunch of money into your mortgage, but haven’t yet paid it off and then you lose your job or you lose the ability to earn money then you’re figuratively fucked. The banks don’t care that you’re going through a hardship. They want their damn money, right?

          So, why in the world wouldn’t you save/invest the difference? You can give yourself a significant padding for future. And if the stock market drops 50%, you’ll still have MORE money than if you hadn’t been investing at all.

          (And I don’t care about your name/email address.)

          • The man that gives good Advice
            October 27, 2013 at 12:29 pm

            Johnny I am not fearful for my own situation as I am not really affected by much of the day to day financial strains that millions of US and UK citizens are going through. I just see things for what they really are rather than what I want them to be.

            In fact I would say that I am an optimist but that I am actually just mindful of how our financial systems work (I design trading systems for banks and exchanges) and I realise a financial correction is coming. All of your forum contributors should note this and try to plan ahead.

            I just get very sad when I see these kind of things on the Internet where you are planning your wealth strategy on hope and the mistaken belief that “the stock market will always go up”. Make no mistake this is folly Johnny. I could debate with you all day about the above notion but this will be my last post here.

            I do not think we actually disagree on investment but more about when to invest. I just believe you should invest at a high level when you are debt free.

            With regards to employment remember not everyone is employed by companies. (You guys should be proud of the US being a great place to start a business!) Its the minority of people that run their own firms and who are self employed that make the most money and unless the demand for my skills goes down (not going to happen as the global demand is way too high the world over) then I will always be in work so I cannot really get fired from my own firm now can I? What I need to cover is being ill and I do that with health insurance and life assurance which are very important financial products. But say I was employed by a firm for arguments sake and I did manage to lose my job next year it doesn’t really matter because I am debt free I will generally have large savings as well as investments (plus my wife works full time) which would cover me very nicely indeed and give me plenty of time to get another job (which I wouldn’t need anyway)

            Do think about what I have said here and all the best to you all on this forum.

          • Johnny Moneyseed
            October 27, 2013 at 12:37 pm

            We may indeed see a correction in the stock market, but one thing that won’t change because of that will be the APR on my mortgage. I’ll continue to happily pay at a less than 4% rate no matter if the DJIA climbs to 35,000 or drops to 5,000. If the market corrects itself, and I’m continuing to invest through it, I’m only going to see good things come out of it in the long term. In a time when people are scared to invest and acting out of fear, I will continue to drop money into the market (instead of my house), because the market always goes up. Always.

            If you have a stupid-high APR (5%+), then pay off your mortgage as quickly as possible. Otherwise, why in the world would you?

            I’m not going to convince you, and that’s fine, but I definitely don’t support the idea of paying off your mortgage faster when you could be investing instead.

  85. Andy
    October 27, 2013 at 10:00 pm

    Johnny: Your assumptions continue to fail to take into account the EFFECTIVE interest rate people typically pay given that most Americans move so frequently. Per the linked Washington Post article, 24% of Americans reported this year that they had moved within the last five years. Stated otherwise, American’s move, on average, every five years.

    When a person moves to a new city and buys a new house, he is typically getting a new 30-year fixed rate mortgage. Most of the interest in that loan is front-loaded. So when the person moves again in say, five years, he sells the house, and he buys a new one, and he again gets a 30-year loan in which interest payments are front-loaded. Repeating this cycle means that the typical person is paying much less toward mortgage reduction than he may otherwise believe. Instead, he is repeatedly paying an effective interest rate that is much, much higher than the rate shown on his loan papers.

    In short, then, this means that a person may very well NOT make more investing extra money in stocks, etc. rather than putting that money toward paying off his house, because the return he would have to make is much, much more than the 4% (using today’s loan rates) that one might assume. This could be mathematically stated. Say the effective interest rate is as low as 8% — and I think that would understate reality — this means that you’d have to earn more than 8% on your stock investments to beat the return of paying off your mortgage.

    Mind you, I am NOT saying that a person should double down on monthly payments. Instead, he should save like crazy — and even in directly-owned stocks, if you want to be a bit risky — and then get to the point where he can pay off the house in one or a few large payments.

    If a 25 year-old would save like crazy and get to the point where his mortgage is paid in full at age 40, he will have another 20 years or more to save more toward retirement. A person with a paid mortgage who is transferred with his job can simply sell the old house and buy a new one, effectively transferrng the paid-off home from city A to city B, assuming similar prices for homes. Otherwise, if he must still borrow to buy a new house, he will have to get another mortgage — and going forward, his rates (and thus payments) are likely to be higher than they are today.

    Tax deductions for homes are not a given in the future. Nor is a stock market that beats inflation. Further, tax brackets may be higher in the future, meaning that the 401(k) balances we see today may not really be worth what we think they are. Putting money in a 401(k) rather than to mortgage reduction, for people who are say, 45 or younger, if not 50, may not — in my humble opinion — be a wise move.

    Johnny, I would really appreciate you responding to these points, especially the one about frequent moving and the higher effective interest rate it necessarily involves.

    One more thing, Johnny: Respectfully, I think your blog will have a lot more credibility if you would avoid using vulgar language.

    • Johnny Moneyseed
      October 27, 2013 at 10:18 pm

      Andy — I understand your point, but like you said I think it would be smarter to save or invest and pay for the house in full. That’s my intention with my current homes. And it will be for any future purchases.

      I don’t know if you’ve looked around this site but I’m not speaking to the traditional audience of people that are going to work into their 60s. I am an early retirement guy and will effectively leave paid employment in 7 years from now.

      With that, I’m speaking to the audience that wants to settle down. The audience that doesn’t care about continually moving. I’m talking to the people that want to build up significant dividend producing assets in a short period of time.

      If this were USA Today or Money Magazine I’d probably side with your argument. But I’m not speaking to the same people as you think I am.

  86. November 13, 2013 at 3:17 pm

    I think it depends on your tolerance of having debt, take away the math portion for just one moment and ask yourself in 5 years would you like to not have a house payment or to have the potential to invest 5 years worth of extra payments into a great investment?

    If I ask my parents about 55-65 and they would say 100x’s over they want the house paid off. I think most people who are not currently investing money outside of there 401K would choose paying off there home.

    We have chosen to pay off our rental home early, this differs a little bit from what you mentioned that you will not earn any income if it is your home, in this case once this has been paid off we will have a larger income. Our plan is similar in nature to yours with 7 years being our goal, but once our rental home is paid off and our current home(also a income producing property) we will have a salary each month to live off of and do what we want with our lives.

    So in our case I feel this is the correct path for us, pay off our home early.

    • Johnny Moneyseed
      November 13, 2013 at 4:11 pm

      I have two concerns about paying off the rental property in lieu of investing. One: When you invest your money (particularly in a dividend producing index fund or ETF equivalent) you will create a secondary source of passive income on top of the rental income. This effectively creates a “salary” for you. And two: When you hold a mortgage on a rental property only the “profits” are taxed, but when you pay off the house completely all of the income from the house is then taxed at whatever income bracket you belong to. Long-term capital gains tax=15%. Standard Middle Class income tax=25%.

      • November 14, 2013 at 9:22 am

        I think in the long run, the 15 or 30 years of paying the mortgage at a regular rate and using the rental income money to invest in stocks/bonds etc is the mathmatical thing to do.

        Our plan is a shorter window, the rental house will be paid off in 3 years, so then we will have the entire rental income to invest with. I also have decided to put a small amount monthly in a dividend producing stock(s) over this period of time as well.

        As far as profits and taxes are concerned, that is a problem I want to have. Also I’m not a CPA by any means but whether you are paying taxes on the rental income or paying taxes on your investment income you are still paying taxes. The caviate would be are you using a Roth IRA or 401K, which I would prefer not to use, because the plan is to retire in 7 years.(6 years and 8 months).

        I’m also going to throw a few words out there that factor into this choice: Peace of mind, risk, freedom, and financial independence. These 4 words matter more to me than anything I have mentioned above. Thanks for your reply I appreciate it, the website looks very good and so far the content looks great as well.

  87. Bill
    November 21, 2013 at 10:12 am

    A consideration I do not see is insurance costs. Mortgage lenders require full replacement insurance coverage on a property, and if you also require flood insurance, that is an additional cost. Thus, along with the mortgage, there are insurance requirements that can often outweigh the “cushion” by not paying off early. Basically, while in a mortgage, you also have to factor the cost or required insurance.

    If you did not have the mortgage, the insurance is your choice.

    • Johnny Moneyseed
      November 21, 2013 at 7:47 pm

      That’s certainly a consideration. It can be as low as $20/month. Is that worth foregoing to save a little money? I personally don’t think so. Life insurance on the other hand….

  88. Stoney
    November 26, 2013 at 5:56 pm

    What would you say about a situation that I’m considering for my household…we live in a house that is worth around 650k near DC, with a 323k balance on our mortgage. Considering (for reasons completely in line with the purpose of your blog) downsizing life and stress to Charlottesville, VA (as I work from home, and my wife will go back to teaching, and can work elsewhere), where we would purchase a 300-350k house (newer, nicer than what we have now)…would you just pay cash? Or would you take out a mortgage just the same. What pops into your Moneyseed mind?

    • Johnny Moneyseed
      November 26, 2013 at 10:27 pm

      Well I’d applaud you for downsizing for starters. Personally, I’d recommend putting the minimum down-payment possible to avoid PMI (in most cases that would be 20%). Then, I’d take advantage of a nice low interest rate and invest the difference in a low-cost index mutual fund.

      People might tell you that it’s crazy to not buy a house outright if you have cash, but I wouldn’t be one of them.

      We live pretty close to each other. I’m just North of you, outside of Baltimore.

  89. Jon
    December 12, 2013 at 12:00 am

    I think what a lot of people don’t see is when you pay off your mortgage you never really own it. You still have to pay taxes and insurance. On our 1650 monthly payment 1100 is p and I …if I invested the 240k we owe into rental property the cash flow would more than cover the whole payment on my personal residence. You still get the tax deduction and it is better than having your house paid off…plus your rental cash flow is taxed at a low rate and you get to factor in depreciation on rental property…..I would say pay off rentals not your personal mortgage.

    • Johnny Moneyseed
      December 12, 2013 at 3:10 pm

      I wouldn’t even pay off a rental, but you’re definitely in the right pattern of thinking. The mortgage on a rental may be 90% of what you’re charging for rent but over time you’ll be able to increase rent and therefore the mortgage-to-rent ratio will shift into your favor. It will become increasingly easier to pay that mortgage, and becoming increasingly more comfortable to charge a higher amount for people to occupy the dwelling.

      • December 12, 2013 at 3:44 pm

        I think paying off rentals trumps investing in index funds that payout dividends. Buy a 100k property using the 1% rule it will cash flow you 12000 a year. Index fund with 100k with an avg. Div payout of 3.5% will get you 3500 a year. I think this would be a good article for you Johnny. Compare which option provides the better cash flow for those who want to retire early. For some reason I see it throughout the Personal Finance blogging community, that Vanguard Index funds are the way to go…and maybe it is for small sums of money invested at a time so you can get a small payout as you build your wealth. However for as little as 50k (of course depending on the where you are located) you can get a side of a duplex that pays out 6k a year. I don’t think you will see payout like that in Dividends…….

  90. Fred
    December 21, 2013 at 11:14 am

    Is anyone taking into account FRONT LOADING of interest. You pay most of your interest in the 1st half of your loan. i’m paying 2/3 of my payment to interest and 1/3 to principal. That’s 66% interest! (on paper it’s 5.3%)

    Of course if you keep your mortgage for 30 years it balances out at the last half of the loan when most of your payment goes to principal. BUT, i don’t know anyone who kept the loan for anything close to 30 years! Either they sold their house or refinanced.


    • Johnny Moneyseed
      December 21, 2013 at 12:24 pm

      Front-loading interest does suck, but over-paying your mortgage doesn’t fix this problem. Over-paying cuts off interest at the end of your mortgage, where interest has the least impact.

      I heard that Congress has been thinking about doing some type of mortgage reform in the future that would benefit homeowners. Basically you would have a fixed interest/principle payment instead of having a decreasing interest payment. It would benefit the government too, because they’d have to give less money back in taxes every year.

      • Gary
        December 21, 2013 at 4:27 pm

        “Over-paying cuts off interest at the end of your mortgage, where interest has the least impact.” I am not sure if that is correct. My understanding is that when you make additional payments towards the principal that reduces the amount of the loan you are paying the interest towards. Ex. 100k at 5% that is 5000 in interest for the year. If you are able to put 10k towards the 100k then that is 90000 at 5% for 4500 in interest. If you do nothing it takes appox. 21 years to pay off 50% of the loan, but if you put additional funds towards the principal on the front end you save years off the back end.

  91. Gary
    December 21, 2013 at 5:37 pm

    I appreciate the article and appreciated the loop-back link to your article, but maybe we are both correct on this one. There are lenders out there which would apply the principal reduction on the back-end (not many but some), but in large part each month, the lender recalculates your loan, taking the old principal balance minus the amount from your last payment that applies towards the principal. Although your total payment amount does not change, the amount that is applied towards reducing the original loan balance increases with each payment, while the amount of interest you pay decreases. This occurs monthly by in large with most lenders. Take a look at your mortgage and see if that is not the case, thus giving perhaps maybe other reasons for not paying off your principal validity, but on this topic paying off principal early reduces principal balances which reduces interest.

    • Johnny Moneyseed
      December 21, 2013 at 6:20 pm

      Can you please show me an example of a bank that would rewrite it’s loan terms every time extra money is overpaid on the principle??

      • Gary
        December 21, 2013 at 6:58 pm

        The banks are not “rewriting” it’s loan terms. The interest remains the same % as agreed upon signing of the lending statement that is notarized. The monthly payment too stays the same. The only thing that changes is the % of the monthly payment that is applied to interest and principal.

        • Johnny Moneyseed
          December 21, 2013 at 8:18 pm

          Please provide some proof that this actually happens.

          • Gary
            December 21, 2013 at 9:10 pm

            I should pull rank on you, but I won’t. For your viewers who want to look into this discussion further they can research how interest rates are calculated on conventional mortgages.
            As far as an example, there are probably millions online. Here is one example by the mortgage professor; well trusted in the community : The rates quoted by lenders are annual rates. On most home mortgages, the interest payment is calculated monthly. Hence, the rate is divided by 12 before calculating the payment.

            Take a 6% rate, for example, and assume a $100,000 loan. In decimals, 6% is .06, and when divided by 12 it is .005. Multiply .005 times $100,000 and you get $500 as the monthly interest payment.

            Suppose the borrower pays $600 this month. Then $500 of it covers the interest and $100 is used to reduce the balance. One month later, when another payment is due, the balance is $99,900, and the interest is $499.50. The interest rate stays the same, but the interest payment is lower because the balance is lower.

            In ARMY SPEAK-I am an FA40….for another topic on another day.

          • Andy
            December 21, 2013 at 9:32 pm

            Gary: Please comment on the topic earlier today, which I also addressed in this threas months ago, regarding front end loading of interest (stated in my terms, the fact that, early in a typical 30-year mortgage, most all of one’s payment is going to interest). My theory, and that of the commentor earlier today, is that this makes one’s effective interest much higher. In my view, this is because of the fact that Americans move so frequently, hence starting over in say 5 years with a brand new 30 year note. By then the borrower has gained little equity but paid a boatload of interest. If you see my comments above, I cite this as a reason to pay off one’s mortgage as soon as possible. Then, if one moves, he can sell his house when he moves and transfer that ownership debt free (assuming a similar value house) in his new house.

            P.S. Thanks for your Army service. I’ve not served in the military, but I’ve paid a lot of taxes to support it.

          • Gary
            December 21, 2013 at 10:01 pm

            Thanks Andy. Short Answer. NOthing is “front loaded” it just appears that way due to the amount, but in all actuality the lender is getting the same % rate during the duration of the loan based on the principal and it is usually calculated on a monthly basis. A little background, In 1933, a congressionally legislated home Owner’s Loan Corporation (HOLC) was created to assist financially distressed homeowners. HOLC was terminated in 1951 after “rescuing over a million mortgages in its 18-year life. However, the use of the stretched-out-payment plan, known as amortized loan, took hold and today it is accepted as the norm. Amortized appear to be front loaded because you have so much going towards interest due to the high amount of what is being borrowed. A term Loan (or straight loan) required only interest payments until the last day of its life, at which time the full amount borrowed was due. This was the standard loan until 1930, but in practice most real estate term loans were not paid off when they matured. Anyways, let me answer your question the mortgage professor who was asked the very same question you are asking.

            It is often said that the interest on home mortgages is “front end-loaded”, implying that the way lenders charge interest is both unfair and self-serving – possibly even sinister. The following statement is typical.
            “Did you know that on your typical 30-year mortgage, it takes approximately 21 years just to pay down less than half of the principal of your loan?

            The Mortgage industry’s big secret has been kept away from the public since the Roosevelt administration. This little known secret has been taking you (and every other homeowner) for a very costly ride. Your 6% LOW INTEREST MORTGAGE IS REALLY costing you upwards of 60% or more!

            You might be asking how you could possibly be paying THAT much without knowing it? It is because ALL mortgages are front end loaded, meaning you’re paying off the interest first. So during all of those first years, you aren’t paying down the principle. Instead, you’re buying the banker a new Mercedes.”
            Lets begin with the factual foundation for this position, which is not in dispute. The standard mortgage contract calls for full amortization over the term with equal monthly payments of principal and interest. For example, a $100,000 loan at 6% for 30 years has a payment of $599.56. That payment, if made every month for 30 years, will retire the mortgage. For convenience, I will call a “fully amortizing mortgage with equal monthly payments” a FAMEMP.
            A necessary consequence of full amortization with equal monthly payments is that the composition of the payment between interest and principal changes over time. In the early years, the payment is mostly interest, in the later years, it is mostly principal. At 6%, it does indeed take 21 years to pay down the balance of the $100,000 loan to $50,000. This is the factual foundation of the front-end loading argument.
            The edifice built on this foundation, however, is entirely erroneous. Lenders collect exactly the interest to which they are entitled throughout the life of an FAMEMP. The interest collected is based strictly on the amount owed them. In month 1, the interest payment is $500 because the lender owes $100,000, in month 253 the interest payment is $250 because at that point the lender is owed only $50,000.
            If two 6% loans are made at the same time, one for $100,000 and one for $50,000, it is obvious that the interest due on the first will be twice as large as that on the second. But, the same is true of a single 6% loan on which the balance is $100,000 at one point in time, and $50,000 at a later point.
            If large interest payments in the early years really generated excess profits for lenders, they would prefer 30-year to 15-year mortgages, because interest payments on the 15 decline much more rapidly. They should therefore charge higher rates on 15s. In fact, they charge lower rates on 15s.
            Similarly, if lenders made extra profits from the high interest payments in the early years of a 30-year loan, they would make higher profits on a 40-year, which doesn’t pay down the balance to half of the original balance for 30 years. Because they are more profitable, lenders should charge lower rates on 40s. In fact, they charge higher rates on 40s.
            In other words, the way that lenders price loans is just the opposite of what we would expect if interest was front-end loaded. Lenders actually prefer shorter term mortgages because their money turns over faster, which reduces their exposure to rising interest rates, and the more rapid pay-down of the balance reduces the risk of loss from default. Mortgage lenders have enough to answer for without saddling them with a charge that is wholly bogus.
            The FAMEMP, which is the basis of the front-end loading argument, was really designed to meet the needs of borrowers. Consider the alternative ways of paying off the $100,000 loan referred to earlier. One way, which was very common during the 1920s, was for borrowers to pay interest only until the end of the term, at which point they had to pay the entire balance. If they could not refinance, which was frequently the case during the 1930s, the alternative was usually foreclosure.
            Another way to pay off the balance is to make equal monthly principal payments, in addition to interest. For a long time, this was the method used in New Zealand. In my example, this would require a principal payment of $100,000/360, or $277.78 a month. In the first month, interest would be $500, making the total payment $777.78, as compared to $599.56 on the FAMEMP. While the payment using this approach would decline over time, the borrower’s ability to afford a given-priced house would be reduced, which is why New Zealand replaced it with the FAMEMP.
            As far as I can determine, the FAMEMP was developed by our early building societies, which were mutual institutions and the forerunners of modern savings and loan associations. In 1934, the newly-created FHA declared that all FHA-insured mortgages had to be EMPFAMs. Its purpose was to make it easy for borrowers to budget, while allowing for systematic (if slow) reduction in the balance. Within a few years, the FAMEMP had become the standard for the industry. The planners at FHA would have been amused by the thought that the FAMEMP was designed to make lenders rich.

          • Andy
            December 21, 2013 at 10:24 pm

            Thanks Gary, that was very interesting. I’ll be curious to see what the legislation might be that Johnny refers to. I still think things could be improved for consumers. You admitted that more is paid toward interest in the early years of a typical 30-year loan. (And I’d bet you that 80% or more of fixed rate mortgage loans are 30-year loans). You also did not refute my point about how the typical American moves so frequently, and the impact of that fact on the real cost of borrowing and remaining in debt. I’d really enjoy hearing your response to that. I’m convinced that Johnny expects he will never move. Johnny, if you do end up moving in five years, let me know if you’re able to get a loan at 3.5% for that debt you’ll still be carrying.

          • Gary
            December 21, 2013 at 10:41 pm

            Adam, I think you are in the right spot with Johnny and others that you can find at, hang around a while and you will see we all tend to do what the other don’t. That is why I am already financially independent and Johnny is well on his way. Appreciate the discussions. Happy Holidays guys!

          • Andy
            December 22, 2013 at 2:06 am

            Yes, Gary and Johnny and on their way to riches. Adam

          • December 22, 2013 at 8:29 am

            Gary that is exactly what happens with UK mortgages, at least it does on mine and most (all?) others I have looked into. I get a yearly statement and you can see what percentage is going to principle and interest each month and the interest goes down and principle payments go up each month, therefore if I overpay, it is cutting the amount of interest I will pay.

            In any case, my mortgage is 2% (variable) so I’d rather leave that be for now, and use excess cash to invest in stocks in the hope of a better return, and/or save up a deposit for a buy to let. If interest rates go through the roof, or I have to move, it might be time to rethink this strategy. I don’t think there is a correct answer to the overpay or not argument because each persons circumstances are different.

            Cheers to all for an interesting discussion.


  92. Matt
    January 4, 2014 at 4:10 pm

    This statement is also a blanket statement since you are not taking into account everybody’s individual tax rates.

  93. Nicole
    January 27, 2014 at 8:17 am

    How do you feel about 15 yr mortgages vs. 30 yr? We switched to a 15 yr for a lower rate and to be paid off in time for college tuition payments for our kids (woo hoo – not!). I know that the total we will pay for the house is now less but would we have been better off with that $$ in the market?

    • Johnny Moneyseed
      January 27, 2014 at 9:37 am

      Nicole — I’m pro 15 year mortgage because they usually have lower interest rates. But I’m also anti 15 year mortgage because of the fact that it nearly doubles your monthly payment. If you go through hard times and aren’t able to make a payment, the bank isn’t going to care, and they’re going to penalize you. If you keep a long 30 year mortgage instead you can sock away that extra money every month just in case you go through said hard times.

    • Gary
      January 27, 2014 at 9:40 am

      Another plus with the 15 year mortgage is quicker build-up of equity that you can tap later on for the kids college.

      • Johnny Moneyseed
        January 27, 2014 at 9:42 am

        Why would you tap equity to pay for you kids college? Why create more debt for yourself? Kids can pay for their own educations. It doesn’t make sense to for someone to delay retirement so their kids will come out of school debt free.

        • Gary
          January 27, 2014 at 9:48 am

          I think a parent who has the ability to pay for a child’s education is the greatest gift a parent can give. Education is not affordable and for a new graduate to be a slave to the banks for the rest of their life is in and of itself why many people are in debt today. If the parent’s can afford college, well hey it happens and I understand. However, setting aside just a little bit a month can help pay for a few semesters and will relieve the burden that much more…every little bit helps.

          • Johnny Moneyseed
            January 27, 2014 at 9:51 am

            I think this idea just creates a system of dependence and entitlement. I love my kids, but they’re going to have to face the debt monster on their own, or do the smart thing and join the military to pay for school.

          • Gary
            January 27, 2014 at 9:59 am

            SMART and ARMY should not be used in the same sentence:) I know what you mean, find a way! Got it. The ARMY helped pay most of my two graduate degrees, but I think the Army does not do a good job allowing someone the time required to get an undergraduate degree in a timely manner. How many people have you known in the Army that have to drop classes due to time constraints. If there is a better option for the parents/kids as a family to help alleviate the debt be it an obligation to student loans or to uncle sam as a Solider that should be something discussed and planned for way before the kids are ready for college….and pray for scholarships, lotteries, and inheritance in the mean time.

          • Johnny Moneyseed
            January 27, 2014 at 10:49 am

            I didn’t say Army, I said military. I’m in the Marine Corps.

            The SMART thing to do would be to join ROTC in college. Then you can continue earning a degree like a normal student, then you owe the military a few years (2-6 years). This lets you graduate college THEN have 2-6 years of great work experience. I agree that it’s super hard to take classes while you’re enlisted, but it can be done. My wife and I are always taking college courses whenever the funding allows it.

  94. jkenny
    January 27, 2014 at 4:01 pm

    Just want to echo those comments that talk about the non-monetary benefits of having your mortgage paid off.

    We bought our house in 1999 and paid extra on our mortgage when we could – in $5 or $10 or $15,000 chunks each year – while continuing to add to our stock stash at about the same rate. At some point itemizing on our taxes – even with mortage interest – fell away to taking the standard deduction.

    Watching that mortgage balance go down each year was exciting, and when we finally made the last payment we got a sitter and celebrated with at a fine meal out.

    Since that time (several years now), as the economy tanked, stocks crashed, and my husband’s employment decreased for a couple of years the peace of mind we got from owning our house free and clear every month was worth alot to us. Even these past couple of years, as our investment returns have far exceeded our last mortgage rate (4.75%), it remains a GREAT feeling to have the house paid off.

    Finally, actually seeing our monthly expenditures decrease without a mortgage payment and without childcare expenses removed a huge barrier in our ability to see that FI could be a reality for us. (This was before we had the benefit of discovering Mr. Money Mustache.) Inspired, we save more than ever.

    I don’t argue your sound logic here, but we still believe that paying off the house remains the best financial decision we ever made. We’ve gotten a ton of happiness, peace of mind, and financial elbow room from making that move.

    • Johnny Moneyseed
      January 27, 2014 at 8:24 pm

      I understand and I think that it’s great that you made that decision and that it’s worked well for you.

      But even MMM agrees with me on this one that keeping mortgage debt is fine because investments have much more potential than the house ever will.

      Thanks for your comment. I appreciate hearing from people who have been successful no matter which path they’ve taken.

      • Gary
        January 27, 2014 at 9:11 pm

        “Potential” and reality are two different things. The S&P over the last 10 years have broken about even, if you are invested there are no guarantees and trying to time the market will surely create losers. It all depends on time horizon. Leveraging mortgage is the best bet if you want to maximize dollars, but giving money blindly to someone who will invest it on behalf of you is no winning recipe.

    • Nicole
      January 28, 2014 at 12:52 pm

      FWIW, our monthly payment nowhere near doubled! Also, paying for our kids college is not negotiable for my husband. Separate battle, I suppose but for my family, you’ll just have to take that as a given. And no offense, but I would do a lot, including delay my retirement, to keep my kids from joining any branch of the military. But that’s my very personal opinion.

  95. HookEm
    February 4, 2014 at 4:41 pm

    I’m with Dave on this. Over the life of that loan you’re gonna pay a whole lot more in interest than the slight tax hit your “dodging.”

    • Johnny Moneyseed
      February 4, 2014 at 4:50 pm

      Most people are bad at math when it comes to finances (this is the real problem here). As time goes on your mortgage payment actually gets smaller, because of inflation. Who cares about the interest? It nearly disappears toward the end of the loan.

      In 20 years when I’m making my same $900 P/I payment people are going to be like “how in the world is your mortgage payment so cheap”. A $300k house could be nearly $500k in the 2030s. Think about it.

      • Mark
        June 8, 2014 at 2:25 pm

        Johnny Moneyseed–Here is the reason that you won’t take out a home equity line to invest: It is called RISK. Its too risky to borrow on your house to invest in the market. That is silly. 100% of homes that get foreclosed on have a mortgage. Additionally, the mortgage interest deduction is stupid: Why pay $10,000 to a bank so you can save $2000 in federal income taxes? Plus, yes a house costs money to maintain and renters just call the landlord, but rent goes up every year and you have nothing of value from paying rent after you leave. Ultimately, as an act of stability and peace of mind, paying off your mortgage insures you against the unknown (losing a job or income for example).

        My wife and I are 41 and have nearly paid off the last $132,000 on our house in the last 2.5 years. We make about $85K. We have kept investing at the same time (as Dave Ramsey recommends but you don’t really address), but have just cut our lifestyle to nothing. Yes, theoretically we could have invested the 50% of our income that we put in our house the last two and a half years, but we wouldn’t have. Personal finance is about what you REALLY do with the money, not theoretical. I’m sorry, but I just don’t get that excited about cutting my lifestyle to nothing to invest a little bit more. However, my wife and I got jazzed to sacrifice short term to own our house. Yes, its partly emotional, but it is also about security, freedom, and peace of mind.

        No mortgage at 41? Yes, we can invest more (and we will), but we are free to travel, or even change careers if job cuts happen in a bad economy. We are nearly free and I don’t think it is silly at all.

        • DeRon
          November 7, 2014 at 12:12 pm

          Totally agree with Mark. Johnny Moneyseed does not factor in the risk in his equation. I’m sure I’d sleep a heck of a lot better knowing that if for chance I come unemployed (but if this happened, I’d go work for myself) I wouldn’t have to stress about a house payment. And Mark is correct, you really don’t address that Dave says save 15% and throw the rest towards your house. When I’ve paid off my house, I’ll have that entire house payment, plus that initial 15% to save towards retirement. I think my family and I will be just fine going this route! I would NEVER take out a LOC to invest. That’s Crazy!! I don’t think you really followed Dave Ramsey, you just used his name to spring board your topic.

  96. Garry Burgess
    February 9, 2014 at 9:10 am

    I went the silly route and paid off our mortgage in full. We love the house though, and will be here a long time. Anyway, its all history now, and I’m fully in superstarsaver mode now. I’m just a “pay that bitch off” sort of person.

    For me it was the thing to do because I’m not very comfortable with debt of any sort. Everyone has their own style with the finances. But your arguments do make sense. But would I ever take out a line of credit to invest with – never.

  97. Jerry
    February 9, 2014 at 12:56 pm

    How about this situation?

    I have a pretty good interest rate (3.875%), and no PMI because of a VA Home loan.

    However, because I bought a cheap condo with a $460 monthly mortgage, the annual total of my property taxes/mortgage interest do not come even close to making it advantageous to using the Itemized Deduction over the Standard Deduction, so there’s really no tax advantage to eat up some of the interest rate I am paying.

    Would you still advocate a minimum monthly payment?

    • Johnny Moneyseed
      February 9, 2014 at 7:29 pm

      Jerry – Yes I would still advocate a minimum monthly payment and to invest anything “extra”. You have a super low interest rate (like me) and a VA loan (also like me), and with a low payment like that there’s no reason to pay any extra. The tax advantage from mortgage interest is only a bonus. If you’re not eligible, or it doesn’t work out in your favor during tax season, that’s okay. Shitty, but okay.

  98. Sid
    February 14, 2014 at 6:11 am

    I stumbled on this blog and found informative and educational. Here is my situation: I have a pay PMI of $150 per month for about 6 years when I will be having 20% equity. I am 35 years old and invest to max in my 401K ($17.5k) and have emergency funds in Bank CDs equal to $20k.

    My question: i would need about $40k to eliminate PMI. I was thinking to contribute only up to the match to 401K and pay rest to eliminate PMI. Is this a good approach, any thoughts?

  99. Elaine
    February 20, 2014 at 1:13 pm

    We’ve finally have enough equity to do a re-fi (we’d been upside down for a while) and doing a re-fi is a win-win whether we re-fi a 30 or 20 or 15. We don’t plan on living in the home more than 10 years so which would be better?

    • Johnny Moneyseed
      February 23, 2014 at 6:22 pm

      I would still do a 30 year. Why make your monthly payments bigger than they need to be? If you want to make larger payments you can, but don’t FORCE yourself to with a 20 or 15 year.

  100. louise
    April 17, 2014 at 8:03 pm

    Maybe things are different here in Australia. We tend to pay off our homes (primary residence) as soon as possible. We did ours in 7 years. Do you get a tax break on interest paid on your primary residence? We don’t here. So it would be insanity to pay interest longer than necessary. Louise

  101. Stacy
    May 20, 2014 at 4:38 pm

    Hey there. Thanks for the article and discussion. My friends all have recommended the Ramsey approach, but I’ve been a bit hesitant. So, I got online today to read and really THINK about our situation.
    We have been getting a ton of refi offers in the mail lately. I’m torn about it, and don’t think it’s the right thing to do at this point in our lives. It would be like starting all over again, even IF the interest rate is 2% less. I’m now leaning toward just paying it all off.
    See, sadly, our situation is different than some of the ones I read here. My Mom died in November of 12. (I miss her sooooooo much) She was pretty good at financial things; me……….not so much! She left her kids a fairly nice financial wind fall. I could pay off the house AND still have a bit left to fix it up (boy does it need it) AND still be able to invest in some matches at my DHs work. We are a one income/SAHM family. We are older and pretty much missed our super compounding retirement savings years; both being in our mid-fifties. I’m just thinking that by paying things off, that leaves us with that mortgage payment money each month to invest. That extra each month would also free up our monthly cash flow. I’m not sure which way to go with all of this.
    Anyway, I just wanted to thank you for the original article and everyone else for their input. Guess I need to mull all of this over a bit more.

  102. Timothy
    June 14, 2014 at 11:33 pm

    Will be 30 on the 24th of June. Last year I purchased my house free and clear. 2 bedroom, 1 bath, 2.5 car garage, large shed, huge fenced yard. Property taxes are $805 a year.

    Factor in monthly bills and general maintenance and I’d still say I’m better off than anyone with a mortgage or a lifetime of rental payments.


  103. June 24, 2014 at 11:32 am

    This topic is always worth discussion, even if you’re on the other side of the fence. My family and I have chosen to eliminate our mortgage debt first for reasons you don’t discuss here, but I agree with you that it’s not the “mathematically correct” way to go. To us, the flexibility of low income requirements so that I can stay home with my kids more plays a huge part in the decision.

    Good article! Everyone needs to either invest OR pay off their mortgage, that’s the part we can all agree on!

  104. helen
    July 13, 2014 at 2:35 pm

    My name is Helen jean. I live in Florida USA and I am a happy
    woman today? and I told my self that any lender that rescue my family from our poor situation, I will refer any person that is looking for loan to him, he gave happiness to me and my family, I was in need of a loan of $100,000 to start my life all over as I am a single mother with 3 kids I met the God fearing man loan lender that help me with a loan of $100,000,he is a God fearing man, if you are in need of loan and you will pay back the loan contact him tell him that is Helen jean that refer you to him. Contact Mr. adams via email; May God bless Mr. Adams bond for bringing happiness to my life and my
    family life.

  105. Matt
    August 20, 2014 at 1:33 pm

    Hey Johnny, Just wondering if you could put up some examples of how it’s better to sit on a low interest rate for 30 years than to pay your house of in 5-10 years. I would appreciate it.

  106. September 29, 2014 at 7:36 am

    My comment is this, I have a high salary for a couple of years and then likely a salary of an ordinary mortal. I’m trying to get a place in Manhattan but once I do then I will need to work to pay down the mortgage lickity split so that the actual carrying costs will be 20% of my reduced wages rather than of my presently inflated wages. With that in mind I’ll opt for a 10/20 arm and seek to pay the whole thing way down (thus dramatically altering my monthly payments) prior to the rate beginning to float.

    Now, is that silly?

    • Johnny Moneyseed
      October 2, 2014 at 8:39 pm

      I think going for a 30 year FHA would be better. Just pocket the extra money and use it if you run into lifestyle issues. You can always refinance down the road, but it shouldn’t be necessary because rates are still pretty decent.

  107. Frank Moss
    November 6, 2014 at 8:41 am

    “I consider my family to be debt-free, however, we carry a 30-year mortgage on our house.” That’s nice, but perhaps Bill Clinton considers himself to be a faithful husband. It doesn’t make it true.

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