Pay Down the Mortgage or Invest More? A win/win question.

Another scene from my rental house. It's inefficient, but at least it's paid for.

There’s a thoughtful debate going on right now over in the Money Mustache Forum, where people are comparing different strategies for investing in rental houses.

Some people prefer to save up the full purchase price of a house before plunging in and making the move. Others will make the buy using a mortgage but then pay down the principal as aggressively as possible. Still others will borrow 75% or more of the purchase price, then leave the balance outstanding as long as possible, keeping more of their cash free to make additional leveraged investments.

That’s a landlord-specific example, and not all of us are interested in owning rental houses. But exactly the same thought process goes into deciding whether you should pay off your mortgage as quickly as possible, or pump your surplus cash into stocks and other investments on the theory that the long-term return of stocks is better than the 3.5-4.5% rates that US and Canadian mortgages are currently charging.

It’s a complicated question, because to fully answer it you’d need to consider risk, your personality type, how close you are to retirement, asset valuation and cashflow, and even make a stab at predicting the future. But there is still some good news: it’s a win/win question since either of these strategies involve YOU putting away money in a productive place, which will tend to make you wealthier over time. The Mustachian Way is flexible enough that it will make us all rich relatively quickly, so there is no need to lock on to one particular strategy as The Only Way To Do It.

But just for fun, let’s consider a few different scenarios to compare the effects of payoff and leveraging.

Strategy 1: The Consumer who Thinks he is an Investor
Some of my less Mustachian acquaintances like to talk confidently about the benefits of borrowing money.

“3.5% is the cheapest money you’ll see in a lifetime! I am never paying down my mortgage, I’ll just use my money to make more money!”

This statement is correct in general, but the problem is that it is often used to justify higher consumer spending rather than higher investment. Some people who have said this to me have expensive cars (bought on more of that brilliant low-interest credit), powerboats, and lifestyles that burn most of their salary. But their investment accounts are smaller than even the value of the material things they have bought. These people would be much better off paying down the mortgage, rather than buying additional Mercedes and iPads, because they are currently using the leverage afforded by the mortgage to purchase liabilities rather than assets.

To justify not paying off your mortgage, you have to demonstrate a genuine desire to get ahead through investment. That means having low living expenses (let’s say equal to or lower than mine), and a correspondingly high savings rate (50% or higher). At this point, I will grudgingly admit that you will probably do much better investing in Index funds rather than paying off your mortgage – we’ll get to this in the “Stock Investor” category later in this article.

Strategy 2: The Aggressive Landlord

One of the moderators of the MMM forum is a guy named Joe. He’s a fast-thinking, voraciously-reading, fast-typing type of guy who is on the rocket path to financial independence. He correctly calculates that you can make money MUCH faster when you carry a mortgage balance on your rental houses rather than buy them entirely in cash. Here’s an excerpt from his explanation, edited slightly for compactness:

Let’s say houses cost 100k each, and you have 100k to invest.

You can put 25% down on 4 houses (25k each x 4 = 100k) or 100% down on one house (100k x 1 = 100k).  Houses rent for $1200 per month.

Let’s compare the two scenarios.

We’ll use the 50% rule, a conservative rule-of-thumb which assumes about 50% of your gross rent will will go towards vacancy, repairs, long term capital maintenance, property management, property taxes, insurance, etc.  Mustachian landlords can easily beat this performance, but for now let’s go with it.

Scenario 1: 100% down, no mortgage payment.  You cashflow is $600/month, or $7,200/yr.

Total for scenario 1: $7,200

Scenario 2: 25% down, 30 year mortgage.

At current mortgage rates of 5% (current owner occupied is about 3.75%, investor is 5%), your mortgage payment will be $402.62 principal and interest.  1200 rent – 600 to 50% rule – 402.62 to mortgage = 197.38/mo cashflow per house, or $2368.56/yr.  Times 4 houses = 9474.24

Already you’re making an extra 2 grand per year.

But wait, we are also paying down that mortgage.  Year 1, your tenants pay down $1,012.19 per house of mortgage, or an extra $4048.76 that you gain in equity.

Total for scenario 2: $13,523

So you make almost double in terms of equity gain + cashflow by having mortgages.

That’s assuming no appreciation.  If the house appreciates, you gain 4X as much appreciation.  If it drops, GREAT, buy more houses!  If you aren’t buying places where the rents more than cover the expenses + mortgages, don’t buy them.  Who cares what the “value” is if you’re holding long term.  Even if you lose your job, you can cover the payments because the renters themselves more than cover the payments!

But that’s also counting having someone managing all those properties for you (that’s counted in the 50% rule).  If you want a side-gig as a property manager, you can save yourself an extra $120/mo on scenario one, or $1440/yr.  But if you landlord in scenario 2, you’ll gain an extra $5,760/year.  Yes, you’ll have 4x the work (managing 4 houses vs one), but you have that choice – let them be managed and pay for that, or manage yourself and pick up a few extra bucks than you can in scenario 1.

On top of that, you ALSO get mortgage interest write-off.  So on top of 2 grand more cashflow4 grand principal paydown4x appreciation potential, you can write off some of that cashflow.  PLUS you’ll have 4X the depreciation, sheltering all that cashflow and perhaps protecting some of your W2 income from your normal job.

Joe goes on to point out that over-leveraging is bad, but moderate leveraging (which we’ll define as 4-to-1 in real estate) works out well. But you must you have the personality type to deal with getting loans, and running a business. Real estate investment is actually a business that takes some skill, rather than just a free-for-all form of passive investing. This skill also allows you to avoid buying houses during property bubbles (Joe’s analysis would have ruled out the overvalued sunbelt properties that later lost 50-75% of their value in the US housing crash).

But if you develop the skill and understand the numbers, there are few ways to make as much money so quickly.

Strategy 3: The Young Stock Investor

You’re just getting started on saving for early retirement. You have a good career that is providing some surplus cashflow. But you are not interested in landlording or you live in Silicon Valley or Vancouver where house prices are far too high to justify buying them as rentals. So you decide to invest in stocks.

Over the long run, people who understand economics will generally agree that stocks will do better than the 3.5% return (before inflation) you get by paying off your mortgage. We’ll leave the explanation to the stock market books, but most would predict about 7.5% before inflation* even given today’s relatively high stock prices.

Being sure to max out your 401(k) is even more important, especially for those with incomes over $50,000/year due to the benefits of tax deferral and employer matching.

Strategy 4: The Conservative Early Retiree

You may notice that I speak favorably of strategies 2 and 3 above, and I have followed parts of them both over the years and benefited (even while living through the great financial crisis, the US housing crash, and two major recessions). But now I operate on an all-cash basis. I have no mortgage on my primary house, or the rental house, and I avoiding the temptation to borrow to expand my investments further. And many other retirees, both early and late, take the same path. Why is this?

  1. I am a wimp: I learned during my heavily-leveraged “Big Mistake” business phase that I do not sleep well when things go wrong while there are monthly loan bills that are still due. But I get great pleasure from cashing rent checks and keeping the proceeds entirely for my family. My analytical side knows that I could make much more income through leverage, but sometimes you can afford the analytical side be damned. When? See the next point.
  2. I already have enough income: Once the groceries and the property taxes and the family trips are paid for, the marginal utility of more money drops significantly. If I had more income, I could spend more, which is definitely not interesting. I could save more, which is slightly interesting. I could give more, which is actually quite interesting, but so far I haven’t gone so far as using debt leverage to achieve it. I’d rather achieve more on the production side of things:  working hard on things that force me to simultaneously learn and gain skills, and earn income as a side-effect. Even this blog meets those criteria, although it is heavily tilted towards learning and away from income right now.
  3. Paid-off assets can replace some of the “cash/fixed income” portion of a retirement portfolio: What is better for a retired person: keeping a $200,000 mortgage on your house and having $200,000 invested in corporate bonds that yield 3.5%? Or putting that cash into the mortgage and just having a more stock-heavy portfolio? In general, the mortgage is better since its return is 100% guaranteed and there are no income taxes on saved mortgage interest.
  4. Nobody wants to lend me money anyway: During the years since early retirement, and before switching to the current “all cash” model, I decided to refinance the main house and a few rental houses at various times. As the US credit system tightened, I found it increasingly difficult to qualify for these refinancings, despite the fact that I could prove invested assets greater than the mortgage amounts on the houses. This is because most banks are only set up to handle the typical borrower: someone with lots of income, and negligible assets. When they see that my income is relatively low compared to the value of my house, they assume that I could never handle paying a mortgage. So I had to do much more paperwork and work with special lenders to do these refinancings. Mustachians tend to blow the minds of the regular world, because our spreadsheets do not work the same way their spreadsheets do.

In the end, I respect the power of leverage, but I also came to appreciate the Peace and Quiet of Cash. But that doesn’t mean you can’t take a totally different strategy!


* for the S&P500 calculated roughly as: 2% current dividend rate+3% inflation+2.5% real GDP growth rate. Don’t go crazy writing comments to me about how optimistic this is, I’m just repeating the orthodox view that economic experts (including Warren Buffett) tend to have of long run stock performance.

  • Peter October 24, 2014, 10:16 am

    Over the long-term (113 years to end of 2013) UK equities have returned a nominal geometric mean return of 9% a year / an arithmetic mean return of 11.3%. By the same measure bonds have returned 5.4%/6%.

    If you can lock in a fixed rate mortgage for around 4% today for a decade, say, then I personally like those odds. Even better a mortgage is not marked-to-market (so you don’t face margin calls if house prices oscillate) and most enable some measure of flexible repayments (so you can overpay if the prospective return from equities looks poor).

    Moreover there are different ways to effectively borrow to invest via a mortgage. Using an interest-only mortgage is riskier (because you will face sequence of returns risk on the repayment date, although this can be mitigated as above with earlier repayments) versus a repayment mortgage, where you believe you can safely pay off the 25-year term from salary etc, and save on the side into equities (which is what most people actually do in reality with a pension).

    There’s nothing wrong at all with paying off a mortgage first, but there’s a risk/reward justification for other strategies, too.

  • A-ron November 30, 2014, 12:55 pm

    15 year versus 30 year loan on a rental property. Like many of you I’m most comfortable not having debt yet at the same time I like my money to work hard for me while minimizing my risk. I purchased a rental property last year with a 4.625% – 30 yr mortgage. I’ve been looking at refinancing to a 15 year at approximately 4% since I could still cover my mortgage, taxes + insurance and have money to spare each month. I’m currently putting all my extra rent towards paying down my mortgage. If I refinance I’d pay off the mortgage a year earlier then just putting the extra money towards the 30 yr mortgage. Any thoughts on 15 yr versus 30 yr loans for rental properties?

  • Zoe December 4, 2014, 5:31 am

    Investing may earn you more based on oft-quoted long term averages but, consider this, if the market tanks by 50% in one year, it would take over 7 years of so called “average stock market returns of 10%” to return to the same position you were in just prior to the loss, and that is not even factoring in inflation.

    Consider also the possibility of experiencing a period of unemployment during this period whilst still having to meet your mortgage repayments. Suddenly, leveraging your mortgage to invest doesn’t seem so appealing after all.

    I believe someone once said “rule number 1: don’t lose money, Rule number 2: don’t forget rule number 1″. You have to admit he has a very good point.

  • Jason December 7, 2014, 7:33 am

    I have a unique situation and would like others’ input on this:

    I currently own my personal residence free and clear (built it myself with cash).
    I have mortgages on 3 rentals already.
    I have enough equity in one property that I could re-finance and have the cash to buy land and build a brand new house. The current mortgage would only increase by 200/month, but my cash flow from the new house would be 600/mo. And this property would be free and clear too….

    Any thoughts on this. Or suggestions to do something else. Have a full time job but have built several houses on the side over the years.

  • John G December 15, 2014, 11:15 am

    I too chose the risk-averse approach of paying off the mortgage. As of today, I’m about $6,000 away from done, with $3,000 sitting in escrow that of course the mortgage company won’t apply to the principal. I recognize that I probably would make more invested in the market in the long run, and I’m locking up a ton of capital in the house, but I’m looking forward to being debt free in a month or two, and I like the idea that both my house and traditional retirement accounts (already sufficiently funded) will be taken care of, which then frees me up to invest in the market to build my early retirement stash. The positives of that approach are that I will be less concerned about risk in the market as I invest because I don’t really “need” the money to meet any bills, and if I had to, with a guaranteed roof over my head, and long-term retirement taken care of, I could handle basic needs relatively easily if I lost my job or wanted to switch to one that pays substantially less. Paying down the mortgage also allowed me to add a home equity line of credit as a safety net, which has allowed me to forgo a large emergency fund. Again, I concede that this is a super risk-averse approach, and may have delayed early retirement by a year or two, but it has eliminated a lot of financial stress for me, Plus, it’s been fun to pay the mortgage off!

    • Matt (Semper Fi) July 28, 2016, 8:27 am

      Sounds like a plan after my own heart. I want to branch out and invest in different areas, but I want to do it from a solid base built on bedrock. That will happen in about 18 months when the house is paid off! That’s my current plan, unless I get ample evidence that there is a better way to currently invest my money while avoiding (much) risk.

  • Rick December 29, 2014, 8:28 am

    Paying off the mortgage early seems madness while I only pay 1.39% interest. Putting the money into Stocks & Shares and giving it the chance to earn 4% + seems more sensible. Yet, I know that the low interest rate scenario is a short-term thing and that mortgage payments will rise massively soon. So any money overpaid on the mortgage now will make repayments easier later.

    But stock market investing is so much fun! And that’s the hardest part about putting money into the mortgage. It’s dull city.

    So many other factors to figure too – housing market crash?, effect of inflation on prices (will the mortgage seem so much in 10 years time?), living today rather than tomorrow (you know, maybe it would be nice to have a holiday while you’re young enough to enjoy it properly), etc.

    Still, not have a mortgage would be great…

  • Andy December 29, 2014, 8:29 am

    Behavioural economics teaches us the pain of regret associated with a loss is about double the pleasure associated with a gain. Being in the same boat as you (pay down debt vs invest) it’s helped me to ask the question, “Which decision, if wrong in hindsight, will cause me the least regret?”:

    Wrong decision #1 (debt pay-down): house paid off but stock market doubled during that time.

    Wrong decision #2 (invest): market tanks by 50%

    For me anyway, #1 would produce less pain- I’d rather miss the boat than get run over by it.

    • Plastic Kiwi October 10, 2015, 1:30 am

      I like that Andy. It’s a good way to think about it. I’d also rather feel like I’ve missed out than lose a lot of money.

  • Raj December 29, 2014, 8:34 am

    Keeping the mortgage and investing is the mathematically sound decision.

    You will very likely end up with more money in your pocket if you pay off that mortgage as slow as possible. If you’re okay with the extra added risk (and I’d say the market returning less than 2.75% long term is a pretty low risk, IMO – many high quality companies pay dividends higher than that, and that’s then not counting the stock price going up at all), I wouldn’t pay the thing off.

  • Beach Time January 19, 2015, 11:17 pm

    I enjoy reading this post and comments. I have done both scenarios, high leverage(10% down on a property and then taken out a heloc on that one to buy another) and have also paid off rental houses (yes it is kind of boring and you start eyeing that money sitting there). Leverage is great when things go up, but can take you out of the game when things go down. I think one thing that kept me in the game in 2008 and 2009 when many of my friends defaulted was that I had fixed 30 yr loans. I paid a little more than for an ARM, but I also survived the bad times and was able to buy more rental properties when others could not because of foreclosures on their credit record.

    I think one thing people aren’t mentioning is your age in life. It makes more sense to be #2 aggressive early on, and amass as much as you can in net worth, and then move to #4 later in life (or “next phase in life” in case you want to retire early). I took much more risks before the gray hairs started coming in. Currently I have 6 properties that cash flow well enough, so I don’t really have any desire to pay off the 30 year mortgages at 4.5-5%. Luckily, I made about 21% last year in stock investments which is a much better return than having paid off my mortgages. I also have a strong income so the passive losses from the depreciation and mortgage interest expense are just piling up and waiting for me later on. If I don’t sell the properties, I’ll likely have many years of tax free rental income in the future. And yet, I am planning to pay down some of each of the mortgages so that at a specific target age, all are free and clear. This is just a birthday present to my future self and really just a move towards simplification and ‘enough.’

  • Ramón April 23, 2015, 4:35 pm

    You luck y guys, in my country the lowest interest rate is 8.45% + taxes. An ok condo in the city is close to 160k plus 8% of taxes. For that if you do well you can get get $700 a month for rent. The only good thing is that properties here never decrease in value, no bubble.

  • Evie September 19, 2015, 2:06 pm

    Leverage is not for me. I can contemplate the idea of putting money borrowed in a high-yield saving account, CDs or treasury bills, but not in the stock market. I firmly believe that the money you invest in stocks should be money you can afford to lose. Not necessarily want to lose or like to lose, just afford to lose without being wiped out. I don’t buy stocks on margin either. If you have to repay your loan, you don’t have 20 years to wait until stock market goes back up. The only exception I can contemplate is if you have the same amount of money you are borrowing somewhere, just not immediately available. For example, if you have enough money in a CD that matures before your loan interest goes up, then it may be OK to borrow. In the worst case, you can just take the money from the CD. But you should really be able to afford to lose the money.

    Still haven’t gotten back some of the money I lost when the internet bubble birst. Maybe I didn’t invest in the right stocks, maybe I have too much in my company’s stock, maybe I didn’t sell in the right time. But you cannot expect to always guess right. Nor can you count on the index performance – just look at 20 years preceding 1987 crash.

  • Dave March 18, 2016, 4:25 pm

    I’m a huge believer in paying off debts, including your mortgage, before investing. Today’s low interest rates provide an opportunity to rapidly pay down your principal, before rates return to historical norms. Over your mortgage’s lifetime, chances are that the interest rate you pay is going to exceed an average of 8%. So extra payments that you make today are likely going to be equivalent to an 8% after-tax guaranteed return over the long term.

    • Mr. Money Mustache March 18, 2016, 7:53 pm

      That’s a positive thought, Dave. But note that things are different here in the US where 87% of the blog’s readers are: mortgage rates are generally fixed for the entire 30-year period here. You can refinance at any time to lock in lower rates, but they can never raise the rates on YOU. Kind of a borrower’s paradise (for better or for worse).

  • Andy March 28, 2016, 11:29 am

    The standard variable rate UK mortgage rates haven’t been 8% since the late 1990s. So that’s 15-years ago, and when base rates were far higher. That’s 15 years of a 25-year mortgage right there. Yet you talk about “historical norms”…

    Meanwhile, we currently exist in a world of near-zero interest rates, and have done for seven years. The only way mortgage rates are going to 8% in the next 10 years or so (and probably beyond) will be if the Central Banks lose track of inflation, at which point *having* a big mortgage would be desirable (because hyper-inflation erodes debt fast).

    A majority of middle class professionals have a mortgage and save into a pension at the same time. Most, I imagine. So by the logic of the mortgage alarmists, they are all following bad advice.

    Don’t get me wrong, I think there is NOTHING wrong with paying off a mortgage as fast as you can. It is one of the safest investment you can make in terms of guaranteed return, though it does have disadvantages — in particular woeful diversification (all your investment eggs are in one basket — residential property, and just one residential property at that).

    And I fully agree there are greater risks with continuing to invest when you could be paying off the mortgage instead, especially outside of employer-matching pensions and the like.

    But in return, there are potentially greater rewards. It’s a decision. That’s what investing is about.

  • The Accumulator September 21, 2016, 1:31 pm


    Two and a half years ago I’d saved enough in cash and index funds to pay off my mortgage.

    I didn’t do it.

    Instead I cooked up a clever-clever plan to slowly pull out of equities over the next eight years – hoping to squeeze a little more from the upside along the way.

    I’d won the game but I kept on playing anyway.

    What happened was that I found out a lot about myself – especially my ability to tolerate risk

    Half of my mortgage repayment fund was sat in cash, half in equities. The idea was that instead of wholesale withdrawal, I’d stage an orderly retreat that would put me 100% in cash by 2021.

    But no plan survives contact with the enemy. Especially when the enemy is me.

    When I sketched out my scheme, I thought the enemy was a remote nightmare scenario where Mrs Accumulator and I both lost our jobs while equities crashed like a meteor to Earth and interest rates plumed like so much radioactive dust.

    And in 2013, the recovery from financial Armageddon 2008-style felt like it had some way to run.

    I didn’t want to miss out on the boost that staying strong in equities could give me as I pushed towards my next summit: financial independence.

    It was a calculated risk, and many warned me against it. Their concerns mostly related to a deep personal hatred of debt.

    If you have it, get rid of it. Don’t take chances. Cut your chains as quickly as you can and get the hell out of there. Don’t saw halfway through the manacles then hang about pulling victory poses in your cell while the guards play cards next door.

    It was good advice. However I felt that time and financial wiggle room was on my side.

    Change of plan:

    The markets climbed. My portfolio was up 20% by the end of 2013. The rise continued as I made my first annual withdrawal early in 2014.

    The sun kept shining. News bulletins proclaimed record stock market highs.

    It was like watching a rich kid open yet another present: “What have you got me? Oh yeah, another record high is it? Thanks.” (Tosses away).

    But I get nervous when things go too well.

    And the stock market is a see-saw: As valuations soar, expected returns fall.

    With expectations diminished by those record highs, it was time to rethink. Time to rebalance out of equities.

    Time to take money off the table faster than a poker cheat in a Yakuza den.

    By the time my 2015 withdrawal came along, my allocation to cash was already one year ahead of schedule.

    There’d been a sharp, downward jolt September to October 2014. Call it a warning. I didn’t know what was going to happen next but salad days seemed less likely.

    Equities marched on to new highs in May 2015. That was the last high they hit.

    I pulled out another year’s cash in April.

    My equities were now worth about one quarter of my mortgage.

    Turmoil hit in June, August and September.

    On my bike ride to work, I didn’t look at the rolling fields and trees. I kept playing my risk tolerance game

    What if I lost half of everything from here?

    A 50% loss would wipe out 12.5% of the mortgage fund. I could make that up in savings in less than a year. Rationally-speaking, there wasn’t a problem.

    But there was.

    I’d crossed an emotional Rubicon. I was taking risk I didn’t need to take. But it took the recent 15% losses to make me realise it.

    What did the downside look like?


    What did the likely upside look like?

    Meaningless. A few extra grand or so.
    Investor know thyself

    My risk tolerance had shriveled away now my original objective was achieved.

    I was much less brave in the face of losses that I had no business taking.

    I sold out the next week.

    That was back in November. Six years early. The mortgage fund is now 100% in cash. No one can take that away from me now.

    Not even myself.

    It was one of the best decisions I’ve ever made. Like popping a pill marked ‘worry begone’. Now I’m back to gazing at the rolling fields and trees (/grizzling over some other aspect of life).

    I got lucky. Large losses could have punched a hole in my assets and the wind from my gut. That would have been fine if my risk tolerance hadn’t changed once I’d mentally ticked the mortgage off as ‘done’, but it had.

    Since then I’ve taken much bigger losses on my financial independence fund and not felt a thing. Because that’s risk I need to take and the day of reckoning is years away.

    Hopefully this earlier skirmish is a lesson I’ll remember when the time comes to take that money off the table, too.

    At the very least, I know myself much better than I did. The markets tend to force truth on a person.

  • Ross November 28, 2016, 3:15 pm

    Maybe this is a stupid question but.. assuming one was to pay down extra on their mortgage every month in an attempt to pay it off early, isn’t that considered part of your savings rate when using net worth calculators like Networthify?

  • Hayley January 1, 2017, 7:19 am

    Asking a “financial advisor” if a person should put their money to work for them rather than go completely debt free (including mortgage) is like asking the wolf to keep an eye on the chickens or asking a barber if you need a haircut. Seriously. As a real estate broker I know the “party line” on the huge advantages of the mortgage interest deduction but that “savings” still comes at a cost. My husband and I have been debt-free for 5 years now and with what we have saved by that, we have been able to reinvest in ways that secure our retirement. Going debt free was the best thing we ever did.

  • FMaz January 17, 2017, 12:36 pm

    I don’t feel this article clearly explain the dilemma of a simple owner about A) paying off the mortgage on their principal residence VS B) making only minimum payments and investing as much as possible.

    • Bob. July 19, 2017, 8:01 am

      I paid off my mortgage in 2008, felt very accomplished. Then I wanted the benefit of a mortgage to invest more. I got a mortgage in 2009 and invested. That tripled since then. So it really depends on where the stock market is and the interest rate at the time. I was investing 20k per month until the S&P hit 815. Then I put it all in. if I got a loan today I would do the same thing, a portion every month until I felt comfortable putting it all in.

  • Andrew April 26, 2017, 1:43 pm

    What a great article and comments. A question: I understand many people consider the mortgage to be considered a negative bond and alter their AA accordingly. I’m just curious if they are then forced to include their home equity as part of their portfolio or if they simply subtract their mortgage (all?) debt from their bond holdings AA?

    Example: A house “worth” 400k has 200k mortgage but 200k equity. Call it a wash? A debt is debt and always needs to be considered a negative bond? How about school loans? Negative bond as well? THANKS!!!

    I’ve always kept my home equity as part of net worth but never part of my portfolio. Just curious what everyone thinks? Thanks

  • Reade July 18, 2017, 2:26 pm

    This is always an interesting debate. My wife and I are allowed to do a lump sum of 20% a year without penalty on our mortgage. We have done this for the past three years. If we apply the same 20% this year, we will be able to pay off the mortgage in full. I understand the mathematical arguments, but we plan on paying it off in full in about a month. For me it’s more for the emotional benefit, I like the fact that I don’t owe anyone anything, it greatly reduces my monthly expenses and it’s a guaranteed return. Having money in investments is also too tempting to spend on useless stuff.

    But either way, as long as you are doing positive things with your money, you should be OK.

  • EVIE October 31, 2018, 8:37 am

    I feel I have made a huge mistake. For years I have been busy paying down my mortgage like a madman. I have ignored the huge potential for growth in the stock market in favour of the safe and secure return on paying down debit, earning an effective return of just 2.75%. I now find myself with a very small mortgage, but have not benefited from the huge returns I could have gained if I had invested instead.

    I am reassured that my housing is safe and secure, but I don’t FEEL wealthy. If I lost my job tomorrow, I would not be able to eat or keep up with my bills very long before running out of money.

  • myhalfmustache February 4, 2020, 8:37 am

    I have been secretly reading your blogs for almost 4 years now and this is first time I am posting. I have been able to pay off my mortgage last year and it took us less than 6 years to pay it off. I do want to mention that our household income is well above average and we also bought a house that was a lot less from what we could have afforded based on our annual income. Thanks for sharing your wisdom/ideas to help others!!

  • chris June 23, 2020, 4:53 am

    This may sound a bit naive, but I’m guessing it’s unwise to refinance if we plan on moving to a larger house in less than 2 years despite the lower interest rate. The new mortgage would be mostly interest, right? What is the minimum number of years that we would need to stay in our current house for refinancing to make sense?

    • Mr. Money Mustache June 23, 2020, 12:59 pm

      Hi Chris, a good question and the answer really depends in what the refinancing costs are, and how much hassle it is.

      Let’s say you are selling in 20 months, and can refinance a $300k balance from 4.5% to 3.0%. This would save you $375 per month in interest, or $7500 over that 20 month period.

      Since refinancing is much less expensive than that (usually you pay for just an appraisal and some minor closing costs, total under $2k and sometimes even zero in exchange for a slightly higher interest rate), this is probably a big win.

      Note: you should ignore the monthly payment amount and principal/interest split (amortization period). All that really matters is the amount of INTEREST you will be paying – that is the actual expense you are trying to minimize.

      Good luck!

      • Nice Joy June 24, 2020, 12:05 pm

        I am 8 year into my mortgage with an interest rate of 3.25 . If i get a lower rate does it make sense to refinance to a lower rate ? But i will be making my current payments [ extra payments every month]… Even though it is going to be another 30 year loan, I will pay it off way sooner. Is there any online calculator to do the math?

        • Phil June 25, 2020, 11:31 am

          38 yrs is a long time to pay off a house, although at this rate it’s not particularly bad debt. I would be tempted to refi to a 15 yr, that alone should shave off 0.5%. The savings depends on the loan amount and closing costs. You can determine this with the amortization and future value functions in Excel.

      • chris June 24, 2020, 1:18 pm

        Thanks so much for the clarification. It makes complete sense and would be sensible to do so.

  • crni December 28, 2021, 7:20 am

    I am fascinated with the US and this even being possible. No way that in my country or most of the EU in fact would you be able to get these many loans at the same time. The example you give where you just buy multiple properties like that would never happen. This is why I am focusing on investing in ETFs as much as I can but looking at ways to pay of my house even sooner.


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