My friend Christine just reached a pretty huge financial milestone… She and her husband have paid off their mortgage and now own their home free and clear! Woohoo!
This is a life goal many of us strive for, so you’d think everyone would be helping her celebrate. But instead, she’s been receiving some interesting and discouraging feedback! Here’s her story …
My husband and I just paid off our mortgage, 13 years ahead of schedule! Pretty awesome, right? I thought so, too, except that one my subscribers disagreed with me. He replied to my celebration email by saying:
“Not a time to celebrate! You made a big mistake! A house is not how you build wealth, and have full control and liquidity.”
First off, I have no idea who this person is or his level of financial expertise. He could be a garbage man, a middle manager, or a financial advisor! Second, this man knows nothing about my personal finances other than the fact that I just paid off my mortgage early. Third and finally, many financial experts agree that homeownership is still one of the best ways to build wealth for American families.
I hate to admit it, but I really wanted to send him a scathing reply for raining on my celebration parade. But I decided to do something better. I turned it into a social media post that went viral on LinkedIn! I’m still getting comments a week later, and it’s racked up over 20k views!
… But it got me thinking, are there times when you shouldn’t pay off your house early?
When it Might be a Mistake to Pay Off Your Mortgage Early
You Have No Savings:
If your saving account has tumbleweeds blowing through it, then it might be a mistake to pay off your mortgage early. Why? If you have an emergency like a job layoff, major car repair, or big medical bill, you won’t have cash on hand to cover it. And that usually means you’ll be charging it on a credit card.
I like to see my coaching clients accumulate at least six months of their monthly living expenses in liquid savings before paying extra on their home. Plus, your savings will help cover large home maintenance items like a new roof or AC unit.
When You Have High Interest Debt:
My mortgage interest rate racked in at 4.125%. Thankfully, when my hubby and I use credit cards, we pay them off in full every month. What if you’re carrying balances on credit cards with 14% or higher interest rates? Then it would be a mistake to pay off your mortgage before concentrating on your credit card debt.
I typically advise my coaching clients to pay off debts in this order: credit cards, personal loans, student loans, car loans, home equity loans, then mortgages. It just makes sense mathematically to knock out the higher interest debts first because you’re saving more money. Sometimes we’ll do things out of order if it makes sense for cash flow purposes, but 99% of the time, I recommend paying off credit card debt FIRST before paying extra on the mortgage.
When You’re Behind on Retirement:
If your financial planner has cautioned that you’re behind on retirement, you’re going to want to think twice about paying extra on your mortgage, at least for now. One of your biggest assets in saving for retirement is time. The sooner you get started, the better.
The compounding effect of interest and reinvested dividends was dubbed by Einstein as the 8th wonder of the world. Basically, your money is making more money for you, multiplying like frisky little rabbits. Additionally, your retirement accounts are tax-favored, whether you’re investing your money pre-tax (traditional plan) or growing tax free (Roth plan). Tax-favored accounts are a bonus on top of the investment growth.
If you’re behind on saving for your retirement, do that first before paying extra on the mortgage. But I will say this: It’s my goal for all of my clients to be mortgage-free by retirement.
Paying off our mortgage early made sense for us!
In our situation, my husband and I have more than six months of our household expenses in savings, have no other debt, and are ahead of schedule with our retirement investments. So, my “hater” was wrong! This is a time to celebrate, and paying off our mortgage was the right move for us.
What do you think? Is there another scenario where it might be a mistake to pay off your mortgage early?
J Money wrote a post many years ago that has always stuck with me… My Answer To All Financial Debates.
Basically, he explains while there will always be a financially “correct” answer to money decisions, sometimes we get a way bigger feeling of accomplishment doing something different. You can’t really fault someone for making progress toward the things that excite them in life. My 2 cents!
Have a great weekend, y’all!
– Joel 🏄♂️
Joel is a 35 y/o Aussie living in Los Angeles and the guy behind 5amjoel.com. He loves waking up early, finding ways to be more efficient with time and money, and sharing what he learns with others. Rise Early | Retire Early!