Becoming mortgage free is not just a practical goal to be sensibly evaluated as part of your wider investing strategy – although it is that for sure.
There’s an emotional component to getting rid of your mortgage, too. And we shouldn’t ignore our emotions because they hugely influence our ability to stick to our plans.
Paying off your mortgage and owning your home free and clear is a dream for many homeowners. After years or even decades of making monthly mortgage payments becoming mortgage free can feel like a huge burden lifted and a major accomplishment. For those who have been able to pay off their mortgages early, it opens up new opportunities and gives a sense of freedom and financial security.
The Feeling of Safety and Security
One of the biggest benefits of being mortgage free cited by homeowners is an increased feeling of safety and security When you no longer owe anything on your home, it can’t be taken away from you even if you run into financial difficulties in the future You have the reassurance that you will always have a roof over your head no matter what life throws at you.
As one homeowner put it: “There is less need to watch every dollar we spend and earn so closely. There is pride in knowing that we own the roof over our heads. And there is a massive sense of achievement in knowing that we accomplished such a large goal.”
Having your house fully paid off also protects you from being negatively impacted by economic factors like rising interest rates or stricter mortgage lending rules. Once you are mortgage free, you never have to worry about making higher monthly payments or reapplying for a mortgage. For many, this peace of mind is priceless.
Increased Flexibility and Options
Without having a large recurring monthly mortgage payment you free up a significant amount of cash flow each month. This gives you far more flexibility in how you allocate your money.
Many mortgage free homeowners talk about how they can be more selective about the work they take on, change careers more easily, travel more often, help family members financially, and make more expensive purchases like home renovations without having to take on additional debt. The options expand dramatically once a big chunk of your income isn’t automatically going toward the mortgage.
One homeowner shared: “The best part of choosing to live debt-free is that I can be more selective of the work I say yes to because I don’t have the pressure of a mortgage or credit debt. That means no terrible projects, horrible clients, or work I don’t enjoy.”
Ability to Invest and Build Wealth
Without mortgage payments eating up your income, you can redirect extra funds each month into investing and wealth building. Many mortgage free homeowners invest their newfound cash flow into financial markets, real estate, starting a business, or other assets.
One couple used their mortgage payoff cash flow to buy 9 rental properties over time, allowing them to generate substantial passive income and accelerate their path to financial independence.
The equity built up in your paid off home can also be leveraged via a home equity line of credit to fund investments in other assets. Paying off the mortgage first unlocks your home equity and gives you access to an additional source of low cost capital.
Happiness and Satisfaction
There are also less tangible but equally important psychological and emotional benefits to becoming mortgage free. Most homeowners report feeling an immense sense of satisfaction, happiness, and relief once they pay off their home loan.
It’s a feeling of weight lifted, a sense of pride and empowerment in your financial situation, and the comfort of no longer having a large long term debt hanging over your head. As one homeowner put it: “I can honestly say that we are happier when we are mortgage free.”
The satisfaction of accomplishing such a huge financial goal also keeps you motivated to continue achieving and opens up mental space to focus on other life priorities beyond just paying the bills.
Potential Drawbacks
While being mortgage free provides many benefits, there are a few potential drawbacks to consider as well:
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You lose out on potential higher investment returns by putting extra money toward your mortgage instead of investing it. However, paying off the mortgage provides a guaranteed “return” by avoiding interest costs.
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You may end up house rich but cash poor, limiting your liquid assets. This can be mitigated by building up emergency savings and investment accounts prior to paying off your mortgage.
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You lose the tax benefits of mortgage interest deductions. However, the standard deduction means many homeowners no longer itemize deductions anyway.
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Psychological downsides like losing your sense of motivation or purpose now that you’ve achieved your big goal of being mortgage free.
Final Thoughts
For most homeowners who prioritize being mortgage free, the financial and emotional benefits far outweigh the potential downsides. Paying off your home loan early opens up new opportunities, provides security for the future, increases satisfaction and happiness, and allows you to invest and build wealth faster. While not always the optimal financial move on paper, becoming mortgage free transforms your financial life in many positive ways.
Mortgages and make believe
It’s always seemed to me that mortgages are deeply sentimental, in a way that other financial products are not. They’re like the Hallmark movies of the financial world.
Firstly, there’s the hackneyed but heart-warming narrative…
A young couple in love are chasing their dream to own their own home. They struggle to pull together a deposit. The bank agrees to help them. There is champagne (or cheap plonk). They sleep on the floor until their furniture arrives.
Soon they’re ripping wallpaper samples off the rolls at B&Q and picking up those little paint cards with the different coloured strips. The IKEA catalogue is suddenly intensely fascinating.
It’s not all plain sailing, obviously. Our couple have their struggles. Tight budgets and problem neighbours. Arguments about the damp patch on the kitchen ceiling.
A dog joins the cast, and then a couple of children. There are barbecues in the garden.
And all the while they’re paying off that mortgage.
At last – usually when they’re much older and the kids have flown the nest and the dog is buried under the barbecue – their mortgage comes to an end, as all good things must.
The end credits roll, and we see them sailing away into the sunset on a Saga cruise.
Being deeply gullible, I bought into all of that.
I remember going to get my first mortgage, and sitting in a little office in the shopping centre branch of a building society with a woman wearing a name tag and a stern expression.
I was 27 and completely petrified.
Would I make an unfunny joke – likely – and accidentally destroy my chances of getting a mortgage?
Might my asthma – an occasional cough – be categorised as potentially fatal for mortgage-gaining purposes?
Would my employment history – patchy – show that I shouldn’t be trusted with proper money?
When my application was actually approved, it felt like I’d been accepted as a Real Grown-Up.
I was thrilled. So I agreed to everything: payment protection, life insurance, you name it. Because that was what Grown-Ups did.
Shortly afterwards of course I went through the enormous reams of paperwork and realised what I’d done – and promptly cancelled most of what I’d been talked into.
But nevertheless, for a while having a mortgage was a great thing. Because having a mortgage allowed me to buy a house, and that was very exciting indeed.
True, it was a run-down terraced house opposite a patch of waste ground. Not exactly white-picket-fence material
But as far as I was concerned I was Living The Dream.
It only dawned on me later that a mortgage was still a debt.
I’d never thought of it like that before.
A mortgage was a necessary bill, surely? You paid a mortgage or you paid rent. That was how things worked. And at least with a mortgage, you got to have a house that was yours.
Unless the bank took it back.
The more I thought of about it, the more it bothered me.
The reality was that I was in debt – to the tune of many thousands of pounds.
I would never even consider that in any other situation. But I’d just blithely skipped into my mortgage.
I’d even thanked the bank for saddling me with a giant stonking debt!
What was wrong with me?
I read up. I learned that there was Good Debt and there was Bad Debt, and that mortgages fell into the category of Good Debt.
But knowing that didn’t help much.
I ran the numbers – easier to do nowadays with online calculators – to see how much I was going to pay over a 25-year term on the money that I’d borrowed.
The answer was a mind-boggling amount.
Within a year of moving in and mortgaging up, I was furious about the whole situation.
I didn’t know anything back then about FIRE or investing. I hadn’t found Monevator and I didn’t realise that financial independence was an achievable thing.
But I still felt cheated because the world hadn’t properly explained to me that I was digging a hole that would take me most of my working life to climb out of.
It didn’t help that my parents had recently had a brush with the endowment mortgage drama, either. As a consequence I’d begun to see mortgages not as a necessary part of life, but rather a trap for the unwary.
So I decided to haul myself out of the hole.
Fortunately, when my mortgage was set up I had opted for a one that allowed me to make limited monthly overpayments.
I remember that it was presented to me in terms of a saving scheme – that if I built up a surplus through overpayments, I could tap that for a payment holiday at some point in the future.
Going back through the paperwork though, I found that overpayments could be used to reduce the term of the mortgage. Over time, this could slash the total interest that I’d be charged.
Just like that, I was off.
Let’s say you have a £200,000 repayment mortgage charging 5% with 25 years left to run on the clock.
According to Monevator’s mortgage repayment calculator:
- Your monthly payments will be £1,169
- Over the lifetime of the mortgage you’ll pay £150,754 in interest
- The total paid will be £350,754
But wait – you’ll see in the calculator there’s a box for ‘overpayments made per month’.
Don’t leave it hanging! Instead let’s round up the mortgage to £1,400 a month, by entering a £231 overpayment every month into that slot.
Here’s a pretty graph showing what will happen when you do so:
By finding £241 down the back of a sofa / side-hustlin’ / skipping lattes each month, you:
- Pay the bank £1,400 a month
- Save £46,248 in interest over the mortgage’s life
- Pay a far lower total cost of £304,506
Oh, and you get to pay off your mortgage seven years early!
Building a better dream
I hoarded those additional mortgage statements like treasure. I kept them in a special ring binder which I hid under the sofa, and I’d take it out and flick through it when times were hard.
That was important. Because mortgages are about emotions, not just money.
It was incredibly difficult, some months, to find any spare money. Often I resorted to selling things on eBay and sometimes Gumtree to make some cash. I very rarely bought anything nice for myself – for years. If relatives gave me money for my birthday, it went straight into the ‘mortgage-free fund’.
But because I got such a sense of achievement from my little file of paper statements, I kept going and I didn’t waver.
Even when my socks became more hole than sock.
Even when I messed up cutting my own hair and had to wear a hat for three months.
The funny thing is that in some ways it was a very happy time for me. I was on solid ground. I had a mission and I knew how to go about pursuing it.
That walk to the postbox with my cheque every month – I don’t think I’ve ever enjoyed a walk as much since.
There were ups and downs of course. The course of true mortgage freedom never did run smooth.
Setbacks included a financially feckless ex-husband, a child with lots of unanticipated needs, an unwanted second mortgage foisted upon us by said ex-husband (before he was ex-ed!) and several banking shake-ups.
There was also a delightful episode when the building society refused to put the mortgage in my sole name because they didn’t like my job.
But in the end I became mortgage-free not long before my 40th birthday. I’d shortened my mortgage term by about 12 years and saved myself tens of thousands of pounds in interest.
3 Things I Learned After One Year of Living Mortgage Free
FAQ
Why is it not smart to pay off your mortgage?
- 1) You lose your mortgage interest deduction.
- 2) You lose a low borrowing cost.
- 3) You tie up capital in an illiquid asset.
- 4) You decrease your financial returns.
- 5) You might start being less efficient with your time.
- 6) A chance your credit score might take a hit.
What percentage of people live mortgage free?
As of 2023, nearly 40% of homeowners in the United States are mortgage-free, the highest level seen in the past 13 years.Oct 25, 2024
What does it feel like to pay off a mortgage?
Paying off your mortgage means having freedom of cash, giving you more financial options. You could use this extra money to save, invest, or even change your lifestyle, whether it’s taking more time off or building a better work-life balance. What you do with this money is up to you, but you have plenty of options.
Is it better to be mortgage free or have savings?
KEY RULE: If your mortgage rate is around the same, or higher than your savings rate, then it makes sense to overpay… That’s because when it comes to savings, the reverse isn’t automatically true. A higher savings rate could beat overpaying your mortgage, but it won’t always.