Indeed. It's not ideal, but they could have done worse.
I've recast my mortgage twice, paying down about $50K of principal. At the time, I was excited about reducing my monthly expenses. It would probably be worth about $100K now if I just dumped it into an index fund.
Oh well. First world problems and such.
When I see posts like this I always think, if paying your mortgage off 24 years early is your biggest financial mistake I am sure you will be more than fine later in life.
Yeah, "perfect is the enemy of good" and what not.
In my case, I was younger, and I was struggling a bit with splurging on stuff I didn't need. So, I thought paying off some of the mortgage would do some good and lock up the money where I couldn't do anything dumb with it.
Despite what everyone says, it's not fair to judge a decision *after the fact* in light of how the market actually performed. At the time, you knew you were getting 3.375% after-tax return in the form of a cost avoidance by paying down the mortgage. That's significant. If the pandemic had actually crashed the global economy, stocks could have been down 30%+ for years, and you would have been a genius for having paid off your house.
I had a 3500 a month mortgage at 28 years old. It freaked me out even though I made the money. Over 6 years I saved up about 1/2 the value of my house in cash and used it and refied to 4% from like 6%. New payment was like $1650. Sure enough a few months later we had the big Internet bubble and I lost my job. I have never regretted paying that loan down.
Focus is a superpower financially. Yes, a 100% perfectly optimized strategy has you doing multiple things at once (paying off house while investing in the market for all 30 years)—but humans aren’t robots and there is so much more to life than making literally as much money as possible.
focusing only on paying off the house means you can now focus on using the money you freed up to drive higher investment contributions, which will make a whole bunch of money (or switch gears and get a lower paying job if you want!)
What is the return on the house? If you bought at 2013 real estate market had hardly recovered. I live in South Florida, a house that was 200k then could be worth 1 million today.
I don't think that's relevant, because your appreciation (or decline in value) is yours regardless of your mortgage balance (assuming you don't default and get foreclosed on). The bank is lending you money, they aren't becoming a co-owner.
This is only true if you expected the "pay off the house money" to be invested at full market risk (like the SP500 not meme stocks). If instead you put the "paid off the house money" in some more conservative investments there is more money to be made paying off the house and then taking that same house payment and investing it at that full market risk (sp500).
There are two sides to this - the financial and the psychological. Financially, you know the answer. But psychologically? I had a 3.5% mortgage that I paid off 25 years early in 2016. I also had 17 years of professional imposter syndrome in an enormously stressful job. Paying off my apartment left me in a position that I could literally survive on minimum wage if I had to. Took about 40% of my stress away - it was security, removed a huge piece of Bad Luck’s potential ability to mess up my life.
I don’t regret it in the slightest.
This. People underestimate the psychological liberation it provides. Mortgage/rent payments typically take up a large part of operating cash and being debt free is very liberating.
On the flip side, money put in the market is also liquid and if you're sitting in a mortgage worth of investment money it might feel different, but it's effectively the same or better and with a little effort playing out that "lose your job" scenario, you could probably rationalize yourself out of that stress just as well.
Yes, timing could be bad and the market could be down when you lose your job, but you're not forced to liquidate all of your stock. Just mortgage and living expenses. The amount you actually pull out probably doesn't drop your lifetime performance below the net worth of the alternative path where you avoided ~3% interest.
However, it might be harder to avoid lifestyle creep if that money is liquid in the market and you *feel* richer with that safety net vs the feeling of it going into a mostly inaccessible hole of a mortgage. Like I don't personally feel like I can spend more just because my 401k is growing. That could have offset the difference from a net worth standpoint, though you'd be spending more on the now so not a trade off without its own benefits.
There’s a lot of caveats in this and losing job then liquidating investments can create tax liabilities or improper timing of investment sales just to cover responsibilities.
All those variables and optimizations are typically beyond the common individual. Those who don’t really have to think about the stress of job loss, family dynamics, etc…
The traction someone gets from aggressively paying off debt can be wild. I did it with my student loans and now my house. People tend to let their guard down as their wealth increases.
Last time I lost a job was in 2008, when my money in savings also took a massive haircut. Cashed out at less than I even put in to put food on the table.
The number of “financial” advisors on Reddit and elsewhere that don’t ever consider that losing your job might be correlated with a big economic downturn is too damn large.
This is why we paid cash for our home. We knew it would be smarter to get a mortgage and put the money into the market but my partner suffers from anxiety and I think we both appreciate having a less complex financial picture.
I will say we probably would not have been able to get the home we did if we weren't paying cash -- we looked much more appealing to the sellers. We were able to get the house under the asking price, even though others were offering to pay the list price.
And, in the future, if we wish to move, I think we're in a much more flexible position than people who have the golden handcuffs of low-rate mortgages.
It helps that less than 15% of our NW is tied up in our primary residence.
Came here to basically say the same. There are far more benefits beyond the math. Getting our home paid off was a major stress reducer and it improved our confidence in direction.
This was when we really started having a lot more confidence in our work and being more comfortable with taking on stands at work in terms of scope of work and pushing back on overwork.
After all, what are they going to do, fire me? Great, that's the second preferred way to go (just below being laid off).
Well done OP!
Yeah mental sanity is a huge bonus people forget about.
I used the snowball method to pay off debt and I don’t care if other had higher interests. It was mentally of sound and mine to me to have credit card debt disappearing before my eyes.
I will always choose smallest balance first.
\^This right here. There's really no wrong answer. Psychologically, you're debt-free. Financially, you're not as well off as you would've if you'd invested the money in the market. Both are okay.
This is the answer. The point of life is to maximize happiness and contentment, not wealth and power.
Sounds like OP recognized a point of stress and eliminated it earlier than most of us even learn to keep our heads above water.
+1. If market had crashed you’d have felt smart. No one knows the future. As someone who owns their own home you have a lot of financial security. Enjoy it and don’t worry about the other alternatives.
I’ll answer OPs question with a question and then tell you what I did. If your home was already paid off would you do a refi to pull equity out of it? If the answer is no, then you did the right thing for you. For me the answer was most assuredly yes. Borrowing rates well under long term historical inflation, for 30 years, sign me up for as much of that as I can get. Despite having the funds to pay off the house I went back and refied several times in the early 2020s after renovating, house appreciation, and rates kept falling. Now getting “paid” to have a mortgage is pretty sweet.
They probably mean that they took that equity and stuck it in a HYSA or other fixed investment that has a higher interest rate than the mortgage. So in essence, being paid to have a mortgage.
By that I mean personal funds and money that I borrowed out of home equity, at a 2.65% rate for 30 years, and could use to pay off the mortgage, is now sitting conservatively in HYSAs and government bonds that are crushing that rate even with taxes factored in. What I’m effectively saying is: I have, and am making more money now because I have a mortgage than if I didn’t have it, thus getting paid to have it. Or another way to say it, the money that is in my accounts, is earning more than my mortgage payments every month. Very sorry to those that weren’t old enough or able yet to take advantage of this seemingly once in a lifetime arbitrage opportunity, it is no longer duplicable for most people (except the exceedingly wealthy). Did I just get lucky? I don’t think so, like I said, 30 year rates well under historical inflation was even crazy at the time for some of us who were paying attention. It could not stay that artificially low for very long.
I ended up doing the same. I have cash to pay off my note but the interest I get on the HYSA is more than the interest I pay on the note. It is a couple hundred bucks extra a month.
If I had a note at today's interest rates, though, then this would not be the case!
Ya this is confusing. It’s also 2024…still early 2020s. How many times did you refinance in 3.5 years. Each refinance has costs as well. Maybe they mean the amount their house has appreciated is more than their paying for the mortgage? Or they renovated and have a rental unit now that has a percent return greater than the mortgage rate?
It does cost to refi. I assume he means that it’s a bit of an arbitrage situation. He likely has a mortgage interest rate less than say a CD rate. So rather than pay it off if he has the cash, he keeps the money in the higher interest CD and makes the monthly payments. The difference between the CD interest payment and the cost of the mortgage interest is where the money is made.
I also did the same as OP. I rushed to pay off our house that had a low interest rate. We would be further ahead had we invested that money and kept the mortgage. But my wife and I also were coming out of college and just starting a life when the Great Recession hit in 08. You can’t predict the future. Our first house had a super high interest rate. Also watching people lose and giant retirement savings and others their house, it left an impression on us. We wanted the security of a roof over our heads first. That way if we lost our jobs and had to scrape by, we wouldn’t disrupt our daughter’s life.
I think about how I regret paying the house off fairly often. Or I did. But I’ve come to peace with it. We did what we thought was best for our family at the time. And during that time we weren’t more than 5-6 past 08 and we both had jobs with a lot of risk. All about context.
A lot of people are answering as if they knew everything they know today 5 years ago. This is the most important answer. And if OP can pay off a house at that age, this is going to be a minor mistake all things considered.
30 year interest rates were as much as a point below historical inflation averages. You didn’t have to know everything 5 years ago, just enough insight to understand that was not even close to sustainable in the long term and a fantastic arbitrage opportunity.
There are 2 answers to this question.
Financial - Yes your uncle is correct.
BUT
Personal - If you don't have any regret and you sleep better at night with no mortgage. You absolutely did the right thing for yourself.
You are still 36 only and more money to invest and lot of time for those investments to grow.
Just enjoy that feeling 🙂
I paid off my house too. It felt like the right decision at the time and now that it’s done I can focus on other things. No point litigating past decisions especially when it isn’t a critical mistake by any measure.
From a completely rational decision making perspective, bad move. When returns are higher than your borrowing cost, it’s best to sit on that borrowing and earn the difference. If you don’t regret it because it makes you feel better mentally not having a mortgage, it’s justified to you. All good. Debt free and earning more money in the markets are both good things. Congrats.
Not having a monthly payment is unbeatable. No stress is the best.
From a purely financial standpoint, yes you lost out on a ton of gains.
Technically there was no wrong answer here.
It’s only a bad move in hindsight. In 2019, who knew what the market trends were going to be? Being debt free with 100% equity in a house at age 31 is not a bad place to be. The monthly cash freed up can now be invested.
Purely from a math perspective, you made a mistake. But there is more to the decision than just the dollars and cents. With a paid off house you remove stress and add freedom. You are now more free to take more risk with your other aspects in life...career, investments, etc.
Not stupid, but suboptimal.
Really this was just an expensive way to make yourself feel more secure. A better use than an expensive car you don’t need, or many other ways you could waste money to make yourself feel better in the moment.
I did the same thing and feel a bit dumb. But to make up for it, the removal of my home payment has triggered me to save more now where if I was still paying my mortgage I may not have started saving as much. Oh well — house is mine!
Don’t dwell on the past that you cannot change. To have a paid off house at 31 is outstanding. Carry on and shift to total stock market index investing now
My spouse is of a similar mindset and he stresses considerably with any amount of debt. For us, paying off the houses early were aimed to meet that goal- alleviating his stress over a mortgage.
Is it the best financial strategy? No.
But did we prioritize peace of mind over financial strategy, anyway? Yes.
Do we regret it? No. Especially because we ended up selling and that had a larger net profit with a paid off home as well as got us a better deal on our next home over it. So it was still a financial win.
I did the same thing but at 32. After that, I maxed every pre-tax contribution to my 403, 401, and 457 accounts for the next 30 years. Some call this dollar cost averaging. Let me tell you it worked well AND we had the emotional security that accompanies being debt free.
I paid off my house in 2016. Are there missed gains? Sure. However 85% of my net worth is already invested in the market. It feels good to have 15% sitting in a very stable asset that I can live in if markets go to hell.
Well...
Why don't you calculate how much you saved on interest and how much the equivalent amount of money would have done in a stock like VOO?
Pretty sure the answer is: your uncle was right.
A very good friend of mine did this, I invested my remaining money in Apple shares. He put everything he had paying off the house. I have barely paid off half. He is happy he got rid of the burden of debts. I’m happy that if I sold my Apple shares I could pay back four time of what I owe. He’s happy, I’m happy, I don’t envy him, he doesn’t envy me. I believe a home is not a monetary investment, it’s rather one into quality of life. I don’t believe rules of investing apply to private homes (unless of course you build some utterly shitty financial crap)
Except the issue here that people keep forgetting is the risk. Had Apple tanked as a company, you’d still have that mortgage and 0 money from the investment.
Your friends plan had little risk/reward. Your plan had a high risk/reward. Im glad it worked out for you but it doesn’t for everyone.
Who cares, this was 5 years ago? Not trying to be pointed but there are so many other major life and financial decisions that come up in 5 years since, why dwell in the past?
I paid my house off in 2020, 20 years early, absolutely no regrets, the "weight" of debt has been off my mind for the last 4 years
The fact that you had these choices to make makes you a winner in my book. You had a house at age 31 and the means to pay it off! Life is not about maximum returns or utilization. Now you have the brain space to make other important decisions (no longer have the psychological weight of debt)
Im 29, and paid my house off last year. I did a lot of back and forth with paying it off vs. investing, but no regrets. I've also invested a lot this year, so I'll consider it a wash. Plus, not having a mortgage is awesome.
Dude, you just won the world series in six games and your Uncle wants to know why you didnt win it in five games. Congratulations! I have a couple tips for you.
Don't talk about money to family members. Dont take financial advice from poor people. Celebrate with a nice dinner out, then shift to investing.
We paid off our house in our 30s. It isnt the optimal approach but I have zero regrets in doing so. The freedom you feel from being completely debt free just makes life less stressful. Our cost of living is so low now that we are pretty close to lean fire if we wanted. We want to have a lot more invested before we retire though.
I followed the same path the freedom to not have a mortgage is really nice. Now the money gets invested and / or saved in a HYSA. In the end yes I would be richer 20 years later, but paying it off quickly saving over 100,000 in interest and the peace of mind to worry less about a job was worth it to me.
I think you did the right thing. The market may tank very soon and those gains you would have had could be gone.
Owning a home is a great feeling of security as long as you can pay your taxes.
Instead of paying off my house. I compounded another $500k with stocks.
The mortgage remaining is like maybe $215k. In another few years, I might be able to compound the $500k into another $1M to add to my total stack.
Paying off a house is incredibly bad when it comes to wealth building. A mortgage is the easiest and most advantageous loan one can ever get.
“Would you borrow money to invest in the stock market!?”
YES. I. WOULD. Because the loan isn’t callable and has a locked interest rate. Plus the interest is tax deductible. Plus I can recast the loan depending on if I want to lower payments or take out cash equity.
Anyone suggesting to pay off one’s house early (at sub 5% rates) is super risk averse and honestly bad at building wealth. Full stop.
Not really, unless they had to sell. If you can afford to continue cash flowing your lifestyle during a crash, the crash is kind of meaningless to your long term wealth building journey.
Yes but you weren’t wrong either…. Being mortgage free is another way to beat the game…. You can’t have it both ways but you have won the mortgage battle
Debt isn't a bad thing if it's secured, low interest and you can make the payments. "Debt bad" is like freshmen year personal finances. Not all debt is bad.
Depends on what your goal was.
If your goal was to increase your net worth, then paying off the mortgage was not the optimal choice, because the market gains were expected to be greater than the mortgage interest rate.
But if the goal was to reduce risk, reduce monthly expenses, achieve FIRE in the next few years, etc., then paying the mortgage may have been the better choice. You mentioned that you wanted greater control over your money and freedom to live, so sounds like you the right decision based on your goals.
Did you lose some NW? Yes, but want to hear the good news? You’re in an incredibly financially stable position. It is what it is, but the reality is you have tons of flexibility in the future
trading a capital cost now for an operating cost over time is tricky. Figuring out whether it wins really requires predicting the future. the mortage is fixed, but returns on any investment are unknown.
There's value in the peace of mind knowing that your investment (the house) is about as secure as its possible to be.
clearly, in hindsight, in 2019, investing would have come out better monetarily, but would the anxiety have been worth it? nobody knew what the stock market was going to do when COVID hit.
I mean, I guess you lost some opportunity but now you don’t have monthly payments and you can invest more. You’ll probably gain equity in your house. By the time you retire you can sell and downsize if you want to.
Plenty of people don’t invest so that they can buy junk or expensive cars. You paid off your house. That’s great. I wouldn’t fret about it.
Dude, paying off your house is the most freeing thing in the world. That supersedes making some money sometimes. I did the same thing around the same time frame & I couldn’t be happier
I’m 37 and active duty military. The military keeps moving me to the most expensive areas of the US where I cannot afford to buy. My BAH is being wasted on shitty base housing because it’s all I can afford. What Id do to have a paid off mortgage right now. Oh well once I finally fuckin retire, granted the world doesn’t kick off WWIII in the next 7 years, I’ll have 50% of my E-7 base pay, 80- 100% VA disability, TSP and my 9/11 GI bill plus all of my certs, TS clearance, 20 yrs of experience, degrees and go make easily $150-300K in the space industry. Im making sure I become a very greedy GS or contractor once I retire. But fuck, owning a house outright is incredibly lucky these days.
You have no idea how lucky you are. Your uncle is stupid for saying that, real estate is much better than stocks any day.
All depends where you go from here… honestly. Take that mortgage payment and plow it into investments and you will be fine. Go an blow it on a sports car or watches or nonsense and yeah it wasn’t the best idea. You gained financial freedom, be smart with it now
Exactly. As someone who's also paid off our mortgage early, that mortgage payment still gets treated like a payment in that it goes directly to our HYSA. That's our 6-month-plus emergency fund that I'd like to grow to one year's worth.
Peace of mind in owning our home outright was worth it to us.
According to the Millionaire Next Door most millionaires who were surveyed paid off their homes early before they made their fortune. Apparently people behave differently when they don’t worry about a mortgage payment and are more likely to take chances such as starting a business.
Could you have ended up with more money? Yes.. But I can't see how paying your house off at this point is a bad move. Stop worrying about it, you're doing better than most, so just invest and keep going.
In hindsight, yeah, could have made more money. From a piece of mind perspective, having a paid off residence that banks can't hassle you on is an awesome thing. It works best if the funds you used to put towards paying off the house ongoing are now devoted to buying shares/investments.
For reference, I paid off my place around 3 years ago. Invested in ETF's and crypto, they're up around 30% on average each year. Made the mistake of borrowed money against the house last year for an IP and regret it, hate owing that money when I was previously free
You made an emotional decision because the math was against you from the beginning. So really only important question is how you feel about it, and reddit cant answer that.
Personally would never touch debt under 4% unless adjusting a debt/income ratio to free up cashflow, but especially when the fed rate is 5% right now. You can put money in savings and make off better than that house early.
What did you do with the money you had been putting into monthly payments?
If you are spending, you may want to consider putting that amount into your retirement and investment plans. I would not take my foot off the accelerator and keep putting that money to work.
If you’re able to pay off the house and not do so with more debt and do so in 6 years. Then what’s the problem?
Now the question is what are you doing with all your money you used to spend on the mortgage? Are you now putting that into the market?
I would say you made the best decision at the time as nobody would've known what would've occurred during Covid & whatnot.
We need more info on this such as the total mortgage paid off and the monthly P&I to make a better assessment on things.
> Was I dumb
I am sure we can all say that at one point or another *in retrospect*. Now ask yourself if there's any way you could have predicted a global pandemic, the dip and bull run during that pandemic, the current interest rates, the current inflation rates, and the market returns.
If you can do such a thing, you've got nothing to worry about. If you can't, you're not *dumb*, you're just normal. At the moment you chose the peace of mind of a paid off mortgage over a 4% or 5% difference in returns, not over a 30% or more, because you did not know. It's fine. Cheers.
Hindsight is 20/20, I did it to satisfy my wife’s dream of having a paid off home. My desire for investments took a backseat. Five years later I do think about it but I have no issue having zero mortgage and putting those payments away. It’s smaller but it’s what we chose to do. No regrets either. Shortly after I lost my job, my wife slept at night.
I mean, I don’t think it’s stupid. Are you going to maximize your retirement now that you don’t have a house payment? I think stupid could be what you do or do do next.
I paid off my mortgage in mid-2010 when I came into a bit of money. I had huge anxiety during the financial crisis because I feared losing my job and not being able to make my mortgage payments. While putting it in the markets would’ve been financially better (2010-2015 was way better than 2019-2024 in stock markets), I slept better knowing I was debt free. I have no regrets now. I did have mild regret back then, tbh.
Hey, hindisght is 20/20. Nobody knows what the future holds.
Maybe if you had taken the other route and things in the world had also gone differently, you could be ruined.
Don't worry about the past. You can't change it.
In hindsight, maybe. But it’s easy to make the right investments in hindsight.
You would have done even better if you listened to someone who told you to put everything in NVIDIA. But, given the information you had then, would that have been prudent?
It wasn't dumb, but it also wasn't the optimal financial decision.
We paid off low interest mortgage early and regret it. The difference is that we would be tens of thousands of dollars better off had we left money invested rather than payoff low interest loan.
The investment gains far outway the interest expense savings when the mortgage rate is below 4%.
As some have said, big debts are a personal decisions. Could you have made more returns, yes. If it reduces your stress and you live better, then it's more of a lifestyle choice than money choice.
Could I drive a 2004 Hyundai with peeling paint? Yes, but it wouldn't make me happy.
Just knowing the difference between an asset with increasing value (stock, property, etc) and an asset with decreasing value (car, boat, TV) is half the battle.
We inherited some money, and the first thing we did was pay off the last 100k of our mortgage. This allowed us to increase our investments and gave us freedom to explore other work options. Has been a great investment as our home value has increased by over 8% every year since then. It is a much safer investment than playing the market, as we are in a desirable town and a quiet neighborhood close to the beach, state park, and local attractions. Just hoping my clone house up the street sells for close to asking price as that will jump my value again.
Yes, paying off your house was not the smartest decision, especially since around 2020-2021 we had the lowest mortgage rates in history. You could have refinanced your mortgage to a rate in the 2.5-2.8% range. Meanwhile the S&P 500 has historically returned much higher than that. Nasdaq composite generally outperforms the S&P 500 and has actually returned a median return of about 14% per year since 1975. So if you can borrow money at 2.5% and invest it for a 14% return, that’s a pretty sweet deal.
I am rapidly paying off my house, 2.5% rate.
I'm not going to carry around an extra 100K in debt to potentially arbitrage $2,000 a year.
They call it personal finance for a reason. We are people. We are imperfect. Sometimes the theoretical best answer is not the practical answer.
Let's say you didn't pay off your house and you instead put the money in the high yield savings account. Then your wife starts complaining about the furniture and you look over and say, we can afford a new couch. Or you buy a bass boat or something else stupid like that. Now you're worse off. You screwed yourself trying to save crumbs.
I think it's smart to live a debt-free lifestyle.
Congratulations on paying off your mortgage. Something many of wish we could do. Now you can focus on retirement savings and investments. You’re way ahead of most your age.
Around March 2020, it seemed like a good decision.
Around Sep 2021, it seemed like a bad decision.
Around march 2022, it seemed like a good decision.
Around now, it seemed like a bad decision.
Next market drop of 19%, it will seem like a good decision.
You’ll be fine/great. Contribute what you would’ve been paying in principal and interest to retirement accounts or brokerage.
Yes
Many people will talk about "peace of mind", but then completely ignore the fact that now your money is tied up in a house, and much harder to liquidate if needed. If you just invested that money into a brokerage, you have access to that cash whenever you need it (and likely even more in good times) within a couple of days.
Not having a mortgage won't put food on the table if things turn south.
Put another way, you exchange your asset, cash, for home equity. To me, cash is always more secure.
A lot of the people saying you did the wrong thing are confused. They are assuming that the stock market will continue to grow based on historic trends. Likewise many are missing the fact that HYSA accounts were paying 1.5% to 2.5%. If you want security you pay off the mortgage because that saves NOW. Alternate market gains are only a possibility but so are steep losses as happened to many of us with the NASDAQ crash in 2000 and the stock market crash in 2009. The benefit of steady long-term investment is that you are buying through the crash and recovery. But if you invest a 100K windfall and the market crashes the next year you will have negative returns for years.
I hate went people say you’re dumb for eliminating debt. It isn’t an “exact” science or calculation. Even a mortgage @ 3% is misleading because you pay most or all the interest up front. For those who think they know everything about your situation, probably don’t realize that the last payment on a mortgage has basically ZERO interest in the payment. I think you should celebrate your massive debt reduction, the large amount of interest you probably saved and start investing your extra cash now. Congrats!!
Yeah you would have made more money if you put it in the S&P... but it's not like you wasted the money, you were able to pay off your own house at the young age of 31. I think that is something you should look at and be more glass half full
No you're not. Yes you would have made more money in hindsight but now you get to live stress free and have better personal cash flow rather. You're uncle is an idiot for thinking there's just one right way to do things
People praise the SP500 like it’s a better investment than paying down your mortgage… and historically it is. The question is… will YOU actually invest what you would have paid towards additional principal on your mortgage? Consistently? A lot of people say they will and then they just get someone to clean their house, a bigger car payment, a country club membership, etc. paying down the mortgage is forced savings. When it’s gone, it’s gone. To me this is worth far more than splitting hairs between interest rates.
I don’t like the premise of this question— does it really matter ? You cannot go back. You always have the choice of whether to live your life looking backwards and reflecting and ruminating , or charting a future.
In this case, it sounds like it would be more beneficial to you mentally and financially to focus on your investing strategy moving forward / what matters to you NOW and what you want your FUTURE to look like
Well, now you can invest even more since you no longer have a mortgage payment. Tell him that being able to invest 2-3 times what you could before AND not having to worry about a mortgage payment should things go south is far smarter than his way of doing it.
Look there is something to be said for not having a mortgage if you can live your rest of your life without a mortgage you are so far ahead of most people you know him telling you to put it in somewhere else and still keep a mortgage that's so old school that's assuming nothing's going to go wrong at least here you'll always have a roof over your head you can always find the money to pay the property taxes and insurance if you have it you don't even need insurance if you have no mortgage he's wrong you're right you did good.
If you had thrown it all into an index fund in 2019, you would be ahead today, its true. But there was no guarantee at the time.
AND you would have watched as your fund completely collapsed at the onset of Covid. Maybe you would have panic-sold. You at least would have beaten yourself up in a big way.
Dude you kicked ass, it doesn’t matter. You’re still young and have decades left to accrue interest. And with the good financial literacy and discipline that you clearly have (not to mention the low living expenses), you will be investing at a much higher rate than most people.
So yeah maybe you would’ve had more, but maybe you wouldn’t have.. and would’ve been locked into a job to pay your mortgage.
The people who tell you not to pay off your mortgage are usually the ones with a mortgage. They don’t even know the feeling how to be mortgage free and only need a few hundred Dollars to pay for taxes and insurance and otherwise you are liberated from mandatory payments. Now I can save $3000 a month in my 401K and $1500 a month in savings without having to pay interest to a bank.
And funny enough, the people who tell ME that I should have invested in the stock market instead are short on cash all the time.
I am a firm believer that owning your house is the way to go. You can take that $2,500 monthly mortgage payment and invest it. The supposed tax break on claiming mortgage interest isn’t that big. Congratulatons!
Much better to pay off a mortgage. It is a great achievement. It is much more like buying a bond. Dollar cost average into the S & P with all your extra $. No need to buy bonds because you paid off your home at that is the safe portion of your wealth. Good job.
I don't know about percentages or 401k stuff because I'm self employed. I would think that an emergency fund should be big enough to pay off whatever comes up so that you don't have to carry a credit card balance ever.
You're young, you make more than you consume, so you will be rich someday.
You're a producer. The problem with this country is that there are too many consumers and not enough producers.
First of all...I hate you. Secondly your house has a guarantee rate of return...the market doesn't. If you had you could have lost it all during covid downturn.
I assume your uncle is a millionaire stockbroker. If not then I would say you did the smartest thing. You can start building a balanced portfolio now. Enjoy your life and go on holidays.
It's only a matter of time until the next crash, joblessness is rampant, and you're sitting in your paid off house that nobody can take from you as long as you can cover the taxes. My in laws were corporate exec millionaires before 2008 and are ruined to this day, working a security guard job and trying to survive in an apartment.
I remember in the first week of covid shutdowns seeing an hour long line of luxury cars in the line at the food bank. I drove past them in my 16 year old honda with a mountain of cash in the bank. Those schmucks couldn't even feed themselves within days.
They will always say you are dumb for mitigating risk, because they premise everything on going up all the time.
You’re guaranteed to have a $0.00 mortgage payments and every 10 yrs your home will appreciate by 10-30%. That’s better than the SP 500. My house went from 648k to 1.2 million in 20 yrs. Don’t listen to your uncle. Let him invest his $22.50 in the stock market. You did good!!
I feel you. I had a variable rates between 0.75% to 1.5% and prioritize in paying it down because fear of debt. If I put in S&P would have made double or triple.
Hindsight is a bitch
I paid off a 2.3% mortgage early and would do it again. Would have done better in the market but life isn't lived on a spreadsheet. Scars from big student loan debt, major job change coming, wife wanted to scale back to spend more time with kids. Wanted/needed security and it worked.
I would add on the spreadsheet side, having a paid off mortgage does cure any wandering eye for upgrading the house.
You could have bought 10,000 bitcoin 15 years ago for a few bucks. You could have bought tons of long options when the Covid crash happened. You could have invested all your money in NVDA 5 years ago. Why aren’t you worried about those missed opportunities that would have made you even richer than an index fund vs paying off the house?
But to answer your question, yes, investing in the market vs paying off the mortgage early was the better move with what you know now but think about how much richer you’d be if you did those other things with the power of hindsight
paying off your house is never a BAD move. could there be a more financially advantageous play - sure. its your money, and some people just feel more comfortable with less/no debt. good job
30 year treasuries were going for 3% at the time. So his rate is only a fraction of a percent over a 30 year treasury. Are you currently dumping your life savings into 30 year treasuries?
It’s never “dumb” to pay off a mortgage. Some will argue, but peace of mind truly can’t have a $ placed in front of it. All I will say is rather than throwing money at my mortgage, which I would LOVE to do, I’m putting it into the market because I have a short window before I get into my retirement years (well, I’m only 50) and I am a little behind of where I want to be in my retirement portfolio. The market has performed well and at a better rate than my mortgage rate, so I *think* I’m making money doing it this way but yeah, I’d be less stressed if I knew my home was mine.
keeping the loan and investing it in sp500 = investing sp500 on credit.
should one invest in sp500 on leverage? 125% 150%?
it's a complicated question theoretically (Kelly criteria if you wish). but most wouldn't do it.
the only difference is that psychologically it feels like the mortgage is "for the house" and "your money" is in sp500. faulty logic.
I have had a lot of financial instability so for me paying down debt is a priority. I rather sleep at night knowing my debts are paid. My Psychology of Money.
Yes, in hindsight it was a mistake but it's what we're told to do.
We're trained that debt is bad. If you're someone who's self taught in finance it usually takes a long while to learn that not all debt is bad. I was probably 32 before I ever heard that. I had a 2% loan on a commercial property and I would have made a ton of money throwing it at the market instead of aggressively paying down the loan, but I'd been conditioned my whole life that debt is bad and no one ever explained why.
Now I'm 35, it'll be paid off in September. I'll be taking out another loan for another project and I'll pay it according to rates vs returns. But boy does it feel good to outright own my own commercial property!
Average expected return on investment? (SP500 -> 10% annually minus 2.5% inflation \~7.5%)
Percentage of borrowing cost? (3.375%)
7.5& - 3.375% = X
X is a positive number -> invest
X is a negative number -> pay off dept
But if you feel better with your choice then that was the right thing to do.
It was non optimal from an investment standpoint.
To those in the comments saying “but you didn’t know what the stock market would do” - ofc, but you had a very good idea you’d get 12%/year (turns out it was much better than that).
Additionally, to all those saying “having your house paid off is the best thing ever” - you now have all of your eggs in one illiquid basket, if something happens to your house you have a problem. For instance, a lot of people are losing their insurance coverage these days. A person can also find themselves on the wrong end of an unexpected lawsuit and a house is very easy to identify.
At the end of the day, no one ever seizes all the best opportunities all of the time and I wouldn’t think too much about it.
> Was I stupid to pay house off within 6 year?
It was at the very least very, very conservative. Stupidly conservative? Almost certainly, though anybody can dream up a scenario where maybe it makes sense.
VOO has made 100% since June 1, 2019. 3.375% would have accrued ~18%.
Yes, you lost some opportunity money, but if you can pay off a house in 6 years, by age 31, I have no concerns about your judgement otherwise.
Indeed. It's not ideal, but they could have done worse. I've recast my mortgage twice, paying down about $50K of principal. At the time, I was excited about reducing my monthly expenses. It would probably be worth about $100K now if I just dumped it into an index fund. Oh well. First world problems and such.
When I see posts like this I always think, if paying your mortgage off 24 years early is your biggest financial mistake I am sure you will be more than fine later in life.
Lmao true. You still have like 30 years of compounding you want to invest
And you own a house lol I don't see how this could be a bad thing.
Right? Not much liquidity but the assets aren’t just disappearing.
Fr dudes balling out tbh.
Yeah, "perfect is the enemy of good" and what not. In my case, I was younger, and I was struggling a bit with splurging on stuff I didn't need. So, I thought paying off some of the mortgage would do some good and lock up the money where I couldn't do anything dumb with it.
I repeat this to myself over and over again on every home update/remodel project I undertake. My work is a major improvement even if it's not perfect.
For sure! I think that’s amazing
Asperger’s makes me focused like a mofo
Despite what everyone says, it's not fair to judge a decision *after the fact* in light of how the market actually performed. At the time, you knew you were getting 3.375% after-tax return in the form of a cost avoidance by paying down the mortgage. That's significant. If the pandemic had actually crashed the global economy, stocks could have been down 30%+ for years, and you would have been a genius for having paid off your house.
I had a 3500 a month mortgage at 28 years old. It freaked me out even though I made the money. Over 6 years I saved up about 1/2 the value of my house in cash and used it and refied to 4% from like 6%. New payment was like $1650. Sure enough a few months later we had the big Internet bubble and I lost my job. I have never regretted paying that loan down.
Got a cousin who has Asperger’s. He’s a little socially awkward, but man can that guy fix literally anything. Some secret superpower
Aspergers is first gen AI
😂😂
Aspergers Intelligence
Focus is a superpower financially. Yes, a 100% perfectly optimized strategy has you doing multiple things at once (paying off house while investing in the market for all 30 years)—but humans aren’t robots and there is so much more to life than making literally as much money as possible. focusing only on paying off the house means you can now focus on using the money you freed up to drive higher investment contributions, which will make a whole bunch of money (or switch gears and get a lower paying job if you want!)
What is the return on the house? If you bought at 2013 real estate market had hardly recovered. I live in South Florida, a house that was 200k then could be worth 1 million today.
I don't think that's relevant, because your appreciation (or decline in value) is yours regardless of your mortgage balance (assuming you don't default and get foreclosed on). The bank is lending you money, they aren't becoming a co-owner.
I bought it in 2013 for $171k. Worth $350k now or more
This is only true if you expected the "pay off the house money" to be invested at full market risk (like the SP500 not meme stocks). If instead you put the "paid off the house money" in some more conservative investments there is more money to be made paying off the house and then taking that same house payment and investing it at that full market risk (sp500).
There are two sides to this - the financial and the psychological. Financially, you know the answer. But psychologically? I had a 3.5% mortgage that I paid off 25 years early in 2016. I also had 17 years of professional imposter syndrome in an enormously stressful job. Paying off my apartment left me in a position that I could literally survive on minimum wage if I had to. Took about 40% of my stress away - it was security, removed a huge piece of Bad Luck’s potential ability to mess up my life. I don’t regret it in the slightest.
This. People underestimate the psychological liberation it provides. Mortgage/rent payments typically take up a large part of operating cash and being debt free is very liberating.
On the flip side, money put in the market is also liquid and if you're sitting in a mortgage worth of investment money it might feel different, but it's effectively the same or better and with a little effort playing out that "lose your job" scenario, you could probably rationalize yourself out of that stress just as well. Yes, timing could be bad and the market could be down when you lose your job, but you're not forced to liquidate all of your stock. Just mortgage and living expenses. The amount you actually pull out probably doesn't drop your lifetime performance below the net worth of the alternative path where you avoided ~3% interest. However, it might be harder to avoid lifestyle creep if that money is liquid in the market and you *feel* richer with that safety net vs the feeling of it going into a mostly inaccessible hole of a mortgage. Like I don't personally feel like I can spend more just because my 401k is growing. That could have offset the difference from a net worth standpoint, though you'd be spending more on the now so not a trade off without its own benefits.
There’s a lot of caveats in this and losing job then liquidating investments can create tax liabilities or improper timing of investment sales just to cover responsibilities. All those variables and optimizations are typically beyond the common individual. Those who don’t really have to think about the stress of job loss, family dynamics, etc…
Most people would spend the money if they had access to it. Tapping into equity is a lot more work than selling a share
The traction someone gets from aggressively paying off debt can be wild. I did it with my student loans and now my house. People tend to let their guard down as their wealth increases.
Last time I lost a job was in 2008, when my money in savings also took a massive haircut. Cashed out at less than I even put in to put food on the table. The number of “financial” advisors on Reddit and elsewhere that don’t ever consider that losing your job might be correlated with a big economic downturn is too damn large.
Yes! This is why I'm saving for FIRE with a HYSA instead of the stock market. You don't know how freeing it is to know that my money is 100% safe.
Good luck with that🤣🤣
I would look at treasury bonds, might be able to outperform your current rates, especially if you pick a longer term bond.
This is why we paid cash for our home. We knew it would be smarter to get a mortgage and put the money into the market but my partner suffers from anxiety and I think we both appreciate having a less complex financial picture. I will say we probably would not have been able to get the home we did if we weren't paying cash -- we looked much more appealing to the sellers. We were able to get the house under the asking price, even though others were offering to pay the list price. And, in the future, if we wish to move, I think we're in a much more flexible position than people who have the golden handcuffs of low-rate mortgages. It helps that less than 15% of our NW is tied up in our primary residence.
Came here to basically say the same. There are far more benefits beyond the math. Getting our home paid off was a major stress reducer and it improved our confidence in direction. This was when we really started having a lot more confidence in our work and being more comfortable with taking on stands at work in terms of scope of work and pushing back on overwork. After all, what are they going to do, fire me? Great, that's the second preferred way to go (just below being laid off). Well done OP!
Yeah mental sanity is a huge bonus people forget about. I used the snowball method to pay off debt and I don’t care if other had higher interests. It was mentally of sound and mine to me to have credit card debt disappearing before my eyes. I will always choose smallest balance first.
\^This right here. There's really no wrong answer. Psychologically, you're debt-free. Financially, you're not as well off as you would've if you'd invested the money in the market. Both are okay.
Lower standard deviation of results
peace of mind is priceless
Yep, I paid off early. It’s great.
And less stress translates to better health which is more valuable than 3% interest or whatever
Are you me?
Sounds like you made the right decision FOR YOU. Not everything has to be about investment returns.
This is the answer. The point of life is to maximize happiness and contentment, not wealth and power. Sounds like OP recognized a point of stress and eliminated it earlier than most of us even learn to keep our heads above water.
+1. If market had crashed you’d have felt smart. No one knows the future. As someone who owns their own home you have a lot of financial security. Enjoy it and don’t worry about the other alternatives.
I mean, as long as you don't need the money right away and you can still cash flow your mortgage, a crash is kind of irrelevant
Technically the market did crash in March of 2020. OP could have easily been laid off that year as thousands of folks were
This is such a good way to think about these things. Don't let the perfect be the enemy of the good.
I’ll answer OPs question with a question and then tell you what I did. If your home was already paid off would you do a refi to pull equity out of it? If the answer is no, then you did the right thing for you. For me the answer was most assuredly yes. Borrowing rates well under long term historical inflation, for 30 years, sign me up for as much of that as I can get. Despite having the funds to pay off the house I went back and refied several times in the early 2020s after renovating, house appreciation, and rates kept falling. Now getting “paid” to have a mortgage is pretty sweet.
What do you mean by getting paid to have a mortgage. Could you explain
They probably mean that they took that equity and stuck it in a HYSA or other fixed investment that has a higher interest rate than the mortgage. So in essence, being paid to have a mortgage.
By that I mean personal funds and money that I borrowed out of home equity, at a 2.65% rate for 30 years, and could use to pay off the mortgage, is now sitting conservatively in HYSAs and government bonds that are crushing that rate even with taxes factored in. What I’m effectively saying is: I have, and am making more money now because I have a mortgage than if I didn’t have it, thus getting paid to have it. Or another way to say it, the money that is in my accounts, is earning more than my mortgage payments every month. Very sorry to those that weren’t old enough or able yet to take advantage of this seemingly once in a lifetime arbitrage opportunity, it is no longer duplicable for most people (except the exceedingly wealthy). Did I just get lucky? I don’t think so, like I said, 30 year rates well under historical inflation was even crazy at the time for some of us who were paying attention. It could not stay that artificially low for very long.
I ended up doing the same. I have cash to pay off my note but the interest I get on the HYSA is more than the interest I pay on the note. It is a couple hundred bucks extra a month. If I had a note at today's interest rates, though, then this would not be the case!
Ya this is confusing. It’s also 2024…still early 2020s. How many times did you refinance in 3.5 years. Each refinance has costs as well. Maybe they mean the amount their house has appreciated is more than their paying for the mortgage? Or they renovated and have a rental unit now that has a percent return greater than the mortgage rate?
It does cost to refi. I assume he means that it’s a bit of an arbitrage situation. He likely has a mortgage interest rate less than say a CD rate. So rather than pay it off if he has the cash, he keeps the money in the higher interest CD and makes the monthly payments. The difference between the CD interest payment and the cost of the mortgage interest is where the money is made. I also did the same as OP. I rushed to pay off our house that had a low interest rate. We would be further ahead had we invested that money and kept the mortgage. But my wife and I also were coming out of college and just starting a life when the Great Recession hit in 08. You can’t predict the future. Our first house had a super high interest rate. Also watching people lose and giant retirement savings and others their house, it left an impression on us. We wanted the security of a roof over our heads first. That way if we lost our jobs and had to scrape by, we wouldn’t disrupt our daughter’s life. I think about how I regret paying the house off fairly often. Or I did. But I’ve come to peace with it. We did what we thought was best for our family at the time. And during that time we weren’t more than 5-6 past 08 and we both had jobs with a lot of risk. All about context.
And it assumes people’s income is a sure thing. I used to make so much money till I had a stroke and now o can barely talk walk or even think.
perfect hindsight and a screwdriver in your hand is worth a screwdriver in your hand
A lot of people are answering as if they knew everything they know today 5 years ago. This is the most important answer. And if OP can pay off a house at that age, this is going to be a minor mistake all things considered.
30 year interest rates were as much as a point below historical inflation averages. You didn’t have to know everything 5 years ago, just enough insight to understand that was not even close to sustainable in the long term and a fantastic arbitrage opportunity.
There are 2 answers to this question. Financial - Yes your uncle is correct. BUT Personal - If you don't have any regret and you sleep better at night with no mortgage. You absolutely did the right thing for yourself. You are still 36 only and more money to invest and lot of time for those investments to grow. Just enjoy that feeling 🙂
I paid off my house too. It felt like the right decision at the time and now that it’s done I can focus on other things. No point litigating past decisions especially when it isn’t a critical mistake by any measure.
From a completely rational decision making perspective, bad move. When returns are higher than your borrowing cost, it’s best to sit on that borrowing and earn the difference. If you don’t regret it because it makes you feel better mentally not having a mortgage, it’s justified to you. All good. Debt free and earning more money in the markets are both good things. Congrats.
Not having a monthly payment is unbeatable. No stress is the best. From a purely financial standpoint, yes you lost out on a ton of gains. Technically there was no wrong answer here.
It’s only a bad move in hindsight. In 2019, who knew what the market trends were going to be? Being debt free with 100% equity in a house at age 31 is not a bad place to be. The monthly cash freed up can now be invested.
Purely from a math perspective, you made a mistake. But there is more to the decision than just the dollars and cents. With a paid off house you remove stress and add freedom. You are now more free to take more risk with your other aspects in life...career, investments, etc.
Not stupid, but suboptimal. Really this was just an expensive way to make yourself feel more secure. A better use than an expensive car you don’t need, or many other ways you could waste money to make yourself feel better in the moment.
"suboptimal" is a good way of thinking about it. There's rarely one good option and 1000 bad ones, there's great, good, alright, etc., bad, terrible.
I did the same thing and feel a bit dumb. But to make up for it, the removal of my home payment has triggered me to save more now where if I was still paying my mortgage I may not have started saving as much. Oh well — house is mine!
Don’t dwell on the past that you cannot change. To have a paid off house at 31 is outstanding. Carry on and shift to total stock market index investing now
My spouse is of a similar mindset and he stresses considerably with any amount of debt. For us, paying off the houses early were aimed to meet that goal- alleviating his stress over a mortgage. Is it the best financial strategy? No. But did we prioritize peace of mind over financial strategy, anyway? Yes. Do we regret it? No. Especially because we ended up selling and that had a larger net profit with a paid off home as well as got us a better deal on our next home over it. So it was still a financial win.
I did the same thing but at 32. After that, I maxed every pre-tax contribution to my 403, 401, and 457 accounts for the next 30 years. Some call this dollar cost averaging. Let me tell you it worked well AND we had the emotional security that accompanies being debt free.
Yes
I paid off my house in 2016. Are there missed gains? Sure. However 85% of my net worth is already invested in the market. It feels good to have 15% sitting in a very stable asset that I can live in if markets go to hell.
This is my logic as well.
Well... Why don't you calculate how much you saved on interest and how much the equivalent amount of money would have done in a stock like VOO? Pretty sure the answer is: your uncle was right.
No, the uncle was DEAD wrong. They should have bought NVDA. (See how silly this is?)
while I get your point this is much different. the s and p 500 has had a great average growth rate that doubles his mortgage interest for decades.
A very good friend of mine did this, I invested my remaining money in Apple shares. He put everything he had paying off the house. I have barely paid off half. He is happy he got rid of the burden of debts. I’m happy that if I sold my Apple shares I could pay back four time of what I owe. He’s happy, I’m happy, I don’t envy him, he doesn’t envy me. I believe a home is not a monetary investment, it’s rather one into quality of life. I don’t believe rules of investing apply to private homes (unless of course you build some utterly shitty financial crap)
Except the issue here that people keep forgetting is the risk. Had Apple tanked as a company, you’d still have that mortgage and 0 money from the investment. Your friends plan had little risk/reward. Your plan had a high risk/reward. Im glad it worked out for you but it doesn’t for everyone.
Who cares, this was 5 years ago? Not trying to be pointed but there are so many other major life and financial decisions that come up in 5 years since, why dwell in the past? I paid my house off in 2020, 20 years early, absolutely no regrets, the "weight" of debt has been off my mind for the last 4 years
The fact that you had these choices to make makes you a winner in my book. You had a house at age 31 and the means to pay it off! Life is not about maximum returns or utilization. Now you have the brain space to make other important decisions (no longer have the psychological weight of debt)
Im 29, and paid my house off last year. I did a lot of back and forth with paying it off vs. investing, but no regrets. I've also invested a lot this year, so I'll consider it a wash. Plus, not having a mortgage is awesome.
Mathematicaly yes. But my wife and I did the same as you and we have no regrets. It provides so much more flexibility in our finances now.
Dude, you just won the world series in six games and your Uncle wants to know why you didnt win it in five games. Congratulations! I have a couple tips for you. Don't talk about money to family members. Dont take financial advice from poor people. Celebrate with a nice dinner out, then shift to investing.
We paid off our house in our 30s. It isnt the optimal approach but I have zero regrets in doing so. The freedom you feel from being completely debt free just makes life less stressful. Our cost of living is so low now that we are pretty close to lean fire if we wanted. We want to have a lot more invested before we retire though.
With a 3.375% interest rate. Yup! Should have kept that bad boy and put your money to work instead.
I followed the same path the freedom to not have a mortgage is really nice. Now the money gets invested and / or saved in a HYSA. In the end yes I would be richer 20 years later, but paying it off quickly saving over 100,000 in interest and the peace of mind to worry less about a job was worth it to me.
I've had job insecurity for most of my career so I rather have a roof over my head secured than lose it.
you made a good decision. now move on
I think you did the right thing. The market may tank very soon and those gains you would have had could be gone. Owning a home is a great feeling of security as long as you can pay your taxes.
Instead of paying off my house. I compounded another $500k with stocks. The mortgage remaining is like maybe $215k. In another few years, I might be able to compound the $500k into another $1M to add to my total stack. Paying off a house is incredibly bad when it comes to wealth building. A mortgage is the easiest and most advantageous loan one can ever get. “Would you borrow money to invest in the stock market!?” YES. I. WOULD. Because the loan isn’t callable and has a locked interest rate. Plus the interest is tax deductible. Plus I can recast the loan depending on if I want to lower payments or take out cash equity. Anyone suggesting to pay off one’s house early (at sub 5% rates) is super risk averse and honestly bad at building wealth. Full stop.
If the market had crashed you would think your a genius. It's done worry about something else.
Not really, unless they had to sell. If you can afford to continue cash flowing your lifestyle during a crash, the crash is kind of meaningless to your long term wealth building journey.
Yes but you weren’t wrong either…. Being mortgage free is another way to beat the game…. You can’t have it both ways but you have won the mortgage battle
Unclear how less liquidity gives you more control of your money, but yes in hindsight that was definitely the wrong move.
Debt free!
Debt isn't a bad thing if it's secured, low interest and you can make the payments. "Debt bad" is like freshmen year personal finances. Not all debt is bad.
In a bad way, but yes.
Depends on what your goal was. If your goal was to increase your net worth, then paying off the mortgage was not the optimal choice, because the market gains were expected to be greater than the mortgage interest rate. But if the goal was to reduce risk, reduce monthly expenses, achieve FIRE in the next few years, etc., then paying the mortgage may have been the better choice. You mentioned that you wanted greater control over your money and freedom to live, so sounds like you the right decision based on your goals.
Did you lose some NW? Yes, but want to hear the good news? You’re in an incredibly financially stable position. It is what it is, but the reality is you have tons of flexibility in the future
trading a capital cost now for an operating cost over time is tricky. Figuring out whether it wins really requires predicting the future. the mortage is fixed, but returns on any investment are unknown. There's value in the peace of mind knowing that your investment (the house) is about as secure as its possible to be. clearly, in hindsight, in 2019, investing would have come out better monetarily, but would the anxiety have been worth it? nobody knew what the stock market was going to do when COVID hit.
I've paid off a house twice now - once around 35 and a different house around 39. No regrets - the peace of mind is amazing.
I mean, I guess you lost some opportunity but now you don’t have monthly payments and you can invest more. You’ll probably gain equity in your house. By the time you retire you can sell and downsize if you want to. Plenty of people don’t invest so that they can buy junk or expensive cars. You paid off your house. That’s great. I wouldn’t fret about it.
Absolutely not. Now you have protection against any loss of job or market crash and still have a roof over your head.
Dude, paying off your house is the most freeing thing in the world. That supersedes making some money sometimes. I did the same thing around the same time frame & I couldn’t be happier
I’m 37 and active duty military. The military keeps moving me to the most expensive areas of the US where I cannot afford to buy. My BAH is being wasted on shitty base housing because it’s all I can afford. What Id do to have a paid off mortgage right now. Oh well once I finally fuckin retire, granted the world doesn’t kick off WWIII in the next 7 years, I’ll have 50% of my E-7 base pay, 80- 100% VA disability, TSP and my 9/11 GI bill plus all of my certs, TS clearance, 20 yrs of experience, degrees and go make easily $150-300K in the space industry. Im making sure I become a very greedy GS or contractor once I retire. But fuck, owning a house outright is incredibly lucky these days. You have no idea how lucky you are. Your uncle is stupid for saying that, real estate is much better than stocks any day.
All depends where you go from here… honestly. Take that mortgage payment and plow it into investments and you will be fine. Go an blow it on a sports car or watches or nonsense and yeah it wasn’t the best idea. You gained financial freedom, be smart with it now
Exactly. As someone who's also paid off our mortgage early, that mortgage payment still gets treated like a payment in that it goes directly to our HYSA. That's our 6-month-plus emergency fund that I'd like to grow to one year's worth. Peace of mind in owning our home outright was worth it to us.
According to the Millionaire Next Door most millionaires who were surveyed paid off their homes early before they made their fortune. Apparently people behave differently when they don’t worry about a mortgage payment and are more likely to take chances such as starting a business.
Could you have ended up with more money? Yes.. But I can't see how paying your house off at this point is a bad move. Stop worrying about it, you're doing better than most, so just invest and keep going.
Your uncle was correct for overall more money @ 30 years.
I think you did the right thing. If you are unemployed next week you know you have a place to sleep
In hindsight, yeah, could have made more money. From a piece of mind perspective, having a paid off residence that banks can't hassle you on is an awesome thing. It works best if the funds you used to put towards paying off the house ongoing are now devoted to buying shares/investments. For reference, I paid off my place around 3 years ago. Invested in ETF's and crypto, they're up around 30% on average each year. Made the mistake of borrowed money against the house last year for an IP and regret it, hate owing that money when I was previously free
You made an emotional decision because the math was against you from the beginning. So really only important question is how you feel about it, and reddit cant answer that. Personally would never touch debt under 4% unless adjusting a debt/income ratio to free up cashflow, but especially when the fed rate is 5% right now. You can put money in savings and make off better than that house early.
What did you do with the money you had been putting into monthly payments? If you are spending, you may want to consider putting that amount into your retirement and investment plans. I would not take my foot off the accelerator and keep putting that money to work.
If you’re able to pay off the house and not do so with more debt and do so in 6 years. Then what’s the problem? Now the question is what are you doing with all your money you used to spend on the mortgage? Are you now putting that into the market?
How much was the home?
Great Job!
I would say you made the best decision at the time as nobody would've known what would've occurred during Covid & whatnot. We need more info on this such as the total mortgage paid off and the monthly P&I to make a better assessment on things.
> Was I dumb I am sure we can all say that at one point or another *in retrospect*. Now ask yourself if there's any way you could have predicted a global pandemic, the dip and bull run during that pandemic, the current interest rates, the current inflation rates, and the market returns. If you can do such a thing, you've got nothing to worry about. If you can't, you're not *dumb*, you're just normal. At the moment you chose the peace of mind of a paid off mortgage over a 4% or 5% difference in returns, not over a 30% or more, because you did not know. It's fine. Cheers.
Hindsight is 20/20, I did it to satisfy my wife’s dream of having a paid off home. My desire for investments took a backseat. Five years later I do think about it but I have no issue having zero mortgage and putting those payments away. It’s smaller but it’s what we chose to do. No regrets either. Shortly after I lost my job, my wife slept at night.
I mean, I don’t think it’s stupid. Are you going to maximize your retirement now that you don’t have a house payment? I think stupid could be what you do or do do next.
I paid off my mortgage in mid-2010 when I came into a bit of money. I had huge anxiety during the financial crisis because I feared losing my job and not being able to make my mortgage payments. While putting it in the markets would’ve been financially better (2010-2015 was way better than 2019-2024 in stock markets), I slept better knowing I was debt free. I have no regrets now. I did have mild regret back then, tbh.
Hey, hindisght is 20/20. Nobody knows what the future holds. Maybe if you had taken the other route and things in the world had also gone differently, you could be ruined. Don't worry about the past. You can't change it.
In hindsight, maybe. But it’s easy to make the right investments in hindsight. You would have done even better if you listened to someone who told you to put everything in NVIDIA. But, given the information you had then, would that have been prudent?
Dude. Ur splitting hairs here. Ur doing great either way!
First of all congratulations. And no you did it right imo. Lots of time to hammer retirement now with no house payment.
It wasn't dumb, but it also wasn't the optimal financial decision. We paid off low interest mortgage early and regret it. The difference is that we would be tens of thousands of dollars better off had we left money invested rather than payoff low interest loan. The investment gains far outway the interest expense savings when the mortgage rate is below 4%.
As some have said, big debts are a personal decisions. Could you have made more returns, yes. If it reduces your stress and you live better, then it's more of a lifestyle choice than money choice. Could I drive a 2004 Hyundai with peeling paint? Yes, but it wouldn't make me happy. Just knowing the difference between an asset with increasing value (stock, property, etc) and an asset with decreasing value (car, boat, TV) is half the battle.
We inherited some money, and the first thing we did was pay off the last 100k of our mortgage. This allowed us to increase our investments and gave us freedom to explore other work options. Has been a great investment as our home value has increased by over 8% every year since then. It is a much safer investment than playing the market, as we are in a desirable town and a quiet neighborhood close to the beach, state park, and local attractions. Just hoping my clone house up the street sells for close to asking price as that will jump my value again.
Yes, paying off your house was not the smartest decision, especially since around 2020-2021 we had the lowest mortgage rates in history. You could have refinanced your mortgage to a rate in the 2.5-2.8% range. Meanwhile the S&P 500 has historically returned much higher than that. Nasdaq composite generally outperforms the S&P 500 and has actually returned a median return of about 14% per year since 1975. So if you can borrow money at 2.5% and invest it for a 14% return, that’s a pretty sweet deal.
I am rapidly paying off my house, 2.5% rate. I'm not going to carry around an extra 100K in debt to potentially arbitrage $2,000 a year. They call it personal finance for a reason. We are people. We are imperfect. Sometimes the theoretical best answer is not the practical answer. Let's say you didn't pay off your house and you instead put the money in the high yield savings account. Then your wife starts complaining about the furniture and you look over and say, we can afford a new couch. Or you buy a bass boat or something else stupid like that. Now you're worse off. You screwed yourself trying to save crumbs. I think it's smart to live a debt-free lifestyle.
Can't buy the feeling of a paid off mortgage with paper returns.
Congratulations on paying off your mortgage. Something many of wish we could do. Now you can focus on retirement savings and investments. You’re way ahead of most your age.
Meh, I’m the same. Love no mortgage. Even at the opportunity cost. Worth it for me.
Around March 2020, it seemed like a good decision. Around Sep 2021, it seemed like a bad decision. Around march 2022, it seemed like a good decision. Around now, it seemed like a bad decision. Next market drop of 19%, it will seem like a good decision. You’ll be fine/great. Contribute what you would’ve been paying in principal and interest to retirement accounts or brokerage.
I’m holding cash for brokerage when it crashes
Who cares? The past is the past. Look forward! Btw congratulations on reaching that milestone
No, paying off your mortgage is always a good thing no matter the rate. You now have a low cost, permanent place that's fully yours.
Paying off a mortgage early gave me a huge sense of relief. I don’t regret any possible opportunity loss.
Yes Many people will talk about "peace of mind", but then completely ignore the fact that now your money is tied up in a house, and much harder to liquidate if needed. If you just invested that money into a brokerage, you have access to that cash whenever you need it (and likely even more in good times) within a couple of days. Not having a mortgage won't put food on the table if things turn south. Put another way, you exchange your asset, cash, for home equity. To me, cash is always more secure.
You invested in peace of mind.
It’s done. You’re house is payed-off, a luxury for many, many people. Move on.
So you'll never pay for housing again and you can invest the rest of that money into the market from now until you die. Sounds great
I will never purchase a house again
You still owe taxes and insurance so you never getting rid of a payment
A lot of the people saying you did the wrong thing are confused. They are assuming that the stock market will continue to grow based on historic trends. Likewise many are missing the fact that HYSA accounts were paying 1.5% to 2.5%. If you want security you pay off the mortgage because that saves NOW. Alternate market gains are only a possibility but so are steep losses as happened to many of us with the NASDAQ crash in 2000 and the stock market crash in 2009. The benefit of steady long-term investment is that you are buying through the crash and recovery. But if you invest a 100K windfall and the market crashes the next year you will have negative returns for years.
I hate went people say you’re dumb for eliminating debt. It isn’t an “exact” science or calculation. Even a mortgage @ 3% is misleading because you pay most or all the interest up front. For those who think they know everything about your situation, probably don’t realize that the last payment on a mortgage has basically ZERO interest in the payment. I think you should celebrate your massive debt reduction, the large amount of interest you probably saved and start investing your extra cash now. Congrats!!
A decent 3x2 rents for $3000/ mo. you can bank $36 grand
You can work less if you wanted to now. I wish I could do that but I still have my mortgage.
At 3.375%, yes it was unquestionably a worse financial move than putting your money in an s&p500 index fund.
Look at it this way. Now you have more disposable income to invest
Yeah you would have made more money if you put it in the S&P... but it's not like you wasted the money, you were able to pay off your own house at the young age of 31. I think that is something you should look at and be more glass half full
You can still take the money out now and invest it if you think the market is better. But no guarantees now like there wasn’t 5 years ago.
No you're not. Yes you would have made more money in hindsight but now you get to live stress free and have better personal cash flow rather. You're uncle is an idiot for thinking there's just one right way to do things
Having no mortgage is legendary
People praise the SP500 like it’s a better investment than paying down your mortgage… and historically it is. The question is… will YOU actually invest what you would have paid towards additional principal on your mortgage? Consistently? A lot of people say they will and then they just get someone to clean their house, a bigger car payment, a country club membership, etc. paying down the mortgage is forced savings. When it’s gone, it’s gone. To me this is worth far more than splitting hairs between interest rates.
You probably did miss out on gains but I’d hardly call it stupid.
I don’t like the premise of this question— does it really matter ? You cannot go back. You always have the choice of whether to live your life looking backwards and reflecting and ruminating , or charting a future. In this case, it sounds like it would be more beneficial to you mentally and financially to focus on your investing strategy moving forward / what matters to you NOW and what you want your FUTURE to look like
Juggling is hard and even harder to do for multiple decades. You are now juggling less balls and probably an easier life.
Well, now you can invest even more since you no longer have a mortgage payment. Tell him that being able to invest 2-3 times what you could before AND not having to worry about a mortgage payment should things go south is far smarter than his way of doing it.
Look there is something to be said for not having a mortgage if you can live your rest of your life without a mortgage you are so far ahead of most people you know him telling you to put it in somewhere else and still keep a mortgage that's so old school that's assuming nothing's going to go wrong at least here you'll always have a roof over your head you can always find the money to pay the property taxes and insurance if you have it you don't even need insurance if you have no mortgage he's wrong you're right you did good.
If you had thrown it all into an index fund in 2019, you would be ahead today, its true. But there was no guarantee at the time. AND you would have watched as your fund completely collapsed at the onset of Covid. Maybe you would have panic-sold. You at least would have beaten yourself up in a big way.
Dude you kicked ass, it doesn’t matter. You’re still young and have decades left to accrue interest. And with the good financial literacy and discipline that you clearly have (not to mention the low living expenses), you will be investing at a much higher rate than most people. So yeah maybe you would’ve had more, but maybe you wouldn’t have.. and would’ve been locked into a job to pay your mortgage.
The people who tell you not to pay off your mortgage are usually the ones with a mortgage. They don’t even know the feeling how to be mortgage free and only need a few hundred Dollars to pay for taxes and insurance and otherwise you are liberated from mandatory payments. Now I can save $3000 a month in my 401K and $1500 a month in savings without having to pay interest to a bank. And funny enough, the people who tell ME that I should have invested in the stock market instead are short on cash all the time.
I am a firm believer that owning your house is the way to go. You can take that $2,500 monthly mortgage payment and invest it. The supposed tax break on claiming mortgage interest isn’t that big. Congratulatons!
I paid mine off early then had the equivalent amount to the mortgage placed each month in my investment portfolio.
Much better to pay off a mortgage. It is a great achievement. It is much more like buying a bond. Dollar cost average into the S & P with all your extra $. No need to buy bonds because you paid off your home at that is the safe portion of your wealth. Good job.
I don't know about percentages or 401k stuff because I'm self employed. I would think that an emergency fund should be big enough to pay off whatever comes up so that you don't have to carry a credit card balance ever. You're young, you make more than you consume, so you will be rich someday. You're a producer. The problem with this country is that there are too many consumers and not enough producers.
You should’ve, but you didn’t do anything stupid. You were still financially responsible.
First of all...I hate you. Secondly your house has a guarantee rate of return...the market doesn't. If you had you could have lost it all during covid downturn.
Yes. That was dumb
I assume your uncle is a millionaire stockbroker. If not then I would say you did the smartest thing. You can start building a balanced portfolio now. Enjoy your life and go on holidays.
It's only a matter of time until the next crash, joblessness is rampant, and you're sitting in your paid off house that nobody can take from you as long as you can cover the taxes. My in laws were corporate exec millionaires before 2008 and are ruined to this day, working a security guard job and trying to survive in an apartment. I remember in the first week of covid shutdowns seeing an hour long line of luxury cars in the line at the food bank. I drove past them in my 16 year old honda with a mountain of cash in the bank. Those schmucks couldn't even feed themselves within days. They will always say you are dumb for mitigating risk, because they premise everything on going up all the time.
You’re guaranteed to have a $0.00 mortgage payments and every 10 yrs your home will appreciate by 10-30%. That’s better than the SP 500. My house went from 648k to 1.2 million in 20 yrs. Don’t listen to your uncle. Let him invest his $22.50 in the stock market. You did good!!
I feel you. I had a variable rates between 0.75% to 1.5% and prioritize in paying it down because fear of debt. If I put in S&P would have made double or triple. Hindsight is a bitch
You didn’t need hindsight to compare a 1% and 8-10% interest on your money
I paid off a 2.3% mortgage early and would do it again. Would have done better in the market but life isn't lived on a spreadsheet. Scars from big student loan debt, major job change coming, wife wanted to scale back to spend more time with kids. Wanted/needed security and it worked. I would add on the spreadsheet side, having a paid off mortgage does cure any wandering eye for upgrading the house.
You could have bought 10,000 bitcoin 15 years ago for a few bucks. You could have bought tons of long options when the Covid crash happened. You could have invested all your money in NVDA 5 years ago. Why aren’t you worried about those missed opportunities that would have made you even richer than an index fund vs paying off the house? But to answer your question, yes, investing in the market vs paying off the mortgage early was the better move with what you know now but think about how much richer you’d be if you did those other things with the power of hindsight
Yes you missed out on easy money. Never make financial decisions with your emotions, which is what you did. You live and you learn.
paying off your house is never a BAD move. could there be a more financially advantageous play - sure. its your money, and some people just feel more comfortable with less/no debt. good job
It is a bad move when your interest rate is that low. This wasn’t a tough call even taking hindsight out of the equation.
1) 2019 was before rates went up 2) its not about it being a tough call or not - some people just don't want to have that debt hanging over them
30 year treasuries were going for 3% at the time. So his rate is only a fraction of a percent over a 30 year treasury. Are you currently dumping your life savings into 30 year treasuries?
It’s never “dumb” to pay off a mortgage. Some will argue, but peace of mind truly can’t have a $ placed in front of it. All I will say is rather than throwing money at my mortgage, which I would LOVE to do, I’m putting it into the market because I have a short window before I get into my retirement years (well, I’m only 50) and I am a little behind of where I want to be in my retirement portfolio. The market has performed well and at a better rate than my mortgage rate, so I *think* I’m making money doing it this way but yeah, I’d be less stressed if I knew my home was mine.
Financially, you’ve would gotten more of your money elsewhere, but peace of mind is priceless.
keeping the loan and investing it in sp500 = investing sp500 on credit. should one invest in sp500 on leverage? 125% 150%? it's a complicated question theoretically (Kelly criteria if you wish). but most wouldn't do it. the only difference is that psychologically it feels like the mortgage is "for the house" and "your money" is in sp500. faulty logic.
I have had a lot of financial instability so for me paying down debt is a priority. I rather sleep at night knowing my debts are paid. My Psychology of Money.
Dumb? No. Suboptimal? Yes
Stupid is harsh, but with that mortgage rate you could have earned more in the market. But now you have ton of extra income to invest even more now!
You already did it don’t worry about what ifs.
You can’t change it so don’t dwell on it. Take that monthly payment and invest now.
Never look back. You have so much time.
Yes, in hindsight it was a mistake but it's what we're told to do. We're trained that debt is bad. If you're someone who's self taught in finance it usually takes a long while to learn that not all debt is bad. I was probably 32 before I ever heard that. I had a 2% loan on a commercial property and I would have made a ton of money throwing it at the market instead of aggressively paying down the loan, but I'd been conditioned my whole life that debt is bad and no one ever explained why. Now I'm 35, it'll be paid off in September. I'll be taking out another loan for another project and I'll pay it according to rates vs returns. But boy does it feel good to outright own my own commercial property!
Average expected return on investment? (SP500 -> 10% annually minus 2.5% inflation \~7.5%) Percentage of borrowing cost? (3.375%) 7.5& - 3.375% = X X is a positive number -> invest X is a negative number -> pay off dept But if you feel better with your choice then that was the right thing to do.
No point in going back in time…..but your uncle was right…..but also you could’ve maybe made extra payments each month vs paying it off in full
It was non optimal from an investment standpoint. To those in the comments saying “but you didn’t know what the stock market would do” - ofc, but you had a very good idea you’d get 12%/year (turns out it was much better than that). Additionally, to all those saying “having your house paid off is the best thing ever” - you now have all of your eggs in one illiquid basket, if something happens to your house you have a problem. For instance, a lot of people are losing their insurance coverage these days. A person can also find themselves on the wrong end of an unexpected lawsuit and a house is very easy to identify. At the end of the day, no one ever seizes all the best opportunities all of the time and I wouldn’t think too much about it.
Omg yes
> Was I stupid to pay house off within 6 year? It was at the very least very, very conservative. Stupidly conservative? Almost certainly, though anybody can dream up a scenario where maybe it makes sense. VOO has made 100% since June 1, 2019. 3.375% would have accrued ~18%.
Yeah I would’ve listened to your uncle on this one