Why I Don’t Regret Paying Off Our Mortgage Last Year

Last year, on April Fool’s Day, we paid off our mortgage.

Was it foolish to pay off a 2.0% interest rate mortgage instead of investing in the stock market?

Being immersed in the personal finance world, I know what the conventional wisdom says to do. Expected returns in the stock market are far greater than 2.0%, and even money market funds (i.e. VMFXX) are paying over 4% right now with essentially no risk.

But you know what? Personal finance is called personal because everyone does it differently.

Here’s why I don’t regret our decision to pay off the mortgage. (It was a 15-yr mortgage at 2.0% with a balance of a little over $200,000).

Guaranteed Return and Reduced Risk
By paying off the mortgage, I got a guaranteed 2.0% return on the principal balance. That’s pretty dismal, I know.

Instead, I could have invested in the stock market and earned an expected 8-12% over the long run. But, had I invested in the stock market, I would have lost about 18.3% by the end of the year. The S&P 500 was at 4,545 on April 1, 2022 but ended the year at 3,839, a loss of 18.3%. When people talk about stock market returns, they usually talk about the long term average. However, the returns can be much higher or much lower. I avoided a loss of over $35,000 in the short term on that money. You could say I got lucky with the timing.

Don’t get me wrong. My wife and I have a good amount invested in the stock market in our retirement accounts. We are down a good amount in 2022 in those accounts, but I plan to leave that money in there until we retire. There, we are looking for long-term returns and are staying the course. In fact, we are adding to those positions regularly.

Peace of Mind
Consider this. Imagine you have a paid off mortgage and are completely debt free.

If someone offered you a loan at 2.0% to invest in the stock market, would you take out a huge loan to invest in the stock market? Wait, let me rephrase that to factor in today’s rates because I can’t honestly say that I wouldn’t take a loan at 2.0% right now. It’s very tempting.

If someone offered you a loan at 4.25% today to invest in the stock market or some other investment, would you take it? It’s not a resounding yes for me. Unless the investment opportunity was really good, I probably wouldn’t take the offer.

Of course, everyone has different risk tolerance. I am generally risk averse with borrowed money.

For me, when I am managing a small amount of money, I’m happy to take bigger risks because the risk of loss is small. But when I am managing hundreds of thousands, I don’t want to take a huge risk and put my family at risk.

For example, you may be willing to bet hundreds of dollars at the roulette wheel, but would you be willing to be your life savings on a spin of a wheel? Most people are more careful when handling large sums of money (except this guy).

Paying off the mortgage has given me and my wife peace of mind. We have absolutely no debt and no fixed payments.

I drank the Dave Ramsey “Kool-Aid” years ago (in 2008) and have always wanted to hit Baby Step 7 (debt-free including mortgage) and become a Baby Steps Millionaire. It took a little longer than I thought (14 years), but we finally did it.

Increased Cash Flow
Now that we don’t have a mortgage payment, or any payments, our cash flow increases substantially.

It gave me the freedom to go part-time at my government job and spend more time pursuing real estate and other activities. Once we hit financial independence (FI), where income from our investments exceeds our living expenses, I plan to completely leave government service. I was actually planning to leave this month, but we’re expecting another little one in May. I may have to wait another year or two.

So far, with the extra free time, I was able to help coach my son’s baseball team and basketball team. I was able to take my kids on weekend hikes or on vacations. We took them skiing for the first time this year (not cheap) and are going on our first Disney cruise (also not cheap).

We are able to give to causes we believe in without worry.

And, we are able to increase the amount we invest in the stock market from a position of strength.

In almost all situations, I’d rather be completely debt free rather than hold a bunch of debts just because it’s “cheap money.”

More content

Another blogger I follow, Financial Samurai, wrote a post called The Triple Benefit Of Paying Off Your Mortgage Early. If you want another perspective, give it a read.

I also wanted to give a mention to Tae Kim at Financial Tortoise. He has some great videos on YouTube where he talks about financial independence and personal finance. I have a lot of similar views, and I’ve been enjoying his content.