Mr. Frugal Toque on Mortgage Freedom

Foreword from Mustache:

Almost exactly one year ago, our Canadian correspondent Mr. Frugal Toque and his family reached a nice milestone: a mortgage balance of Zero. Although early retirement and financial independence do not strictly require you to pay off your mortgage (or to own a house at all) as long as you have other investments to cover your housing outflows, for many of us there is an irrational and long-lasting glee that comes from owning the place in which you live.

From a rational perspective, sure, stocks and other investments will tend to return more than the 4% you’ll save on mortgage interest. But the mortgage “return” is guaranteed, and fully non-correlated to the stock market. Plus your home will always be yours regardless of what shenanigans the financial system might pull. 

Whatever the reason, mortgage freedom tends to deliver long-lasting happiness to many of those who buy it, which makes it one of the better ways to spend money in my book.

Mr. Toque wrote the story below right after he first killed the thing, then added an afterword to explain how he felt one year later. Finally I have found the right time to publish it. Enjoy!


Mortgage Freeedom

soloI’ve never liked debt.

I should say that first because, of all the privileges I’ve had in my life, developing a hatred of owing someone money has been one of the most profitable.  Every time in my life that I’ve ever borrowed so much as a loonie[1], there’s been a flashing red sign over my head:  “NEGATIVE $1”.  Once I forgot to pay back a guy ten bucks I owed him and he had to remind me.  I am ashamed to this day.

This has given me an edge in life that I can’t overstate.  The idea of running a balance on a credit card is so alien to me that I can’t believe anyone does it, never mind the breathtaking number of people who are comfortable with it.

On the subject of a mortgage, however, I ascribed to the wisdom of the times.  Given the size of house Mrs. Toque and I had decided was appropriate, it made more sense to get in on a fairly cheap market (Ottawa in 2002) rather than rent while gaining no equity.  With our down payment, we took out a mortgage for approximately $260 000.  For the first couple of years, when we were financially flopping around like fish out of water, we didn’t even pay attention to our mortgage.

“Strange,” we seem to have been thinking.  “In this one hand I have extra money.  In this other hand I have a mortgage.  I suppose we should buy a big television.”

Yeah, we really did stuff like that.  Not only is it a sad story, it’s also the tragic plot followed by the vast majority of house-“owning” humans in North America.

“Well, you see,” common thinking goes, “I’ve got a 25 year mortgage.  Can’t do anything about that.  I guess this extra money in my bank account should be turned into a boat, some leather clothing and a heated, indoor swimming pool.”

Then, about two years ago, when Mustachianism had already started chipping away at our habits, I got laid off.  You can read about that in detail, but the relevant bit is that Mrs. Toque and I enjoyed my period of unemployment so much that we became determined to make it a permanent thing.

The first obstacle on that road, from our perspective, was to kill off the mortgage.  Neither of us could rest easy knowing that a monthly payment so large would be hovering over our heads.  So we looked at our budget.  It turns out we live on about $2300, eating fancy seafood and enjoying our family martial arts workouts.  Our mortgage, as well, was set at $2k per month.  Without going into super personal detail, let’s say my salary is quite a bit more than $51k.

So I went into Kung Fu spreadsheet mode and my predictions looked something like what you see below.  The green line is how long it could have taken us.  The red line was another, more serious route.  I turned to Mrs. Toque to say:

How it could have gone vs. how it really went

How it could have gone vs. how it really went

“Honey?  We can beat this fucking thing into the dirt by the end of next year.”

“Really?” she asked.

I waved my hand at the undeniable, mathematical facts displayed on the screen.  A tingly, Han-Solo-saves-the-day, euphoria rushed over us both.

“Hell.  We’re that close?” she said.  “Let’s do it.”

What ensued was a laser like focus that would have made Mr. Mister proud.  Oil changes became things done in our own garage.  The barely used motorcycle was sold.  While I toiled at the 9-5, Mrs. Toque engaged in a culinary conquest that involved making large batches of chilis, sauces and curry dishes and freezing them in yogurt containers.  Our house was scoured and cleansed of numerous Products and Outgrown Clothing in exchange for hundreds of dollars through various Internet intermediaries.  Every bonus or raise was purposely channeled toward this one goal.

Video game purchases were put off, allocated as exceptional acquisitions belonging to special occasions like Christmas and birthdays.  We cut out restaurants in similar ways, doggedly keeping to our $2k budget.

There have been a few times in my life where I have felt something seize hold of me like this: a karate tournament when I was young; the desire to run 10k in under 50 minutes in more recent times.

This was something more intellectually powerful and more enduring than any of those previous desires and it drove the two of us for just about a year and a half.

On January 1, 2014, the Toque family made its final mortgage payment.

My grandmother and her sisters could drink you under the table.

My grandmother and her sisters could have drunk you under the table.

As promised, a bottle of whiskey was purchased.  You can’t really do anything impressive in my family without shots of Crown being involved, and this goes for births, deaths, weddings, birthdays, religious holidays and the stomping into cinders of a mortgage.

And though the shots were hammered back to mark the occasion, the gravity of the situation didn’t pull us in right away.

Mortgage freedom, like any other widening of the straits through which we guide our white-water kayaks, takes a while to register.  There’s this uncomfortable lack of turbulence and drama that makes you think something is about to go wrong.

As February came around, the instinct to “check the bank account” still nagged at me.  By March, money was just sitting there, comfortably reassuring us of the reality of our financial situation.  I scratched my head in dismay.  We’re in June now and it’s really dawned on us that our monetary burn rate has dropped by half.

Yes, it's exactly like this.

Yes, it’s exactly like this.

I wake up every morning and I can take a deep, relaxing breath knowing that I don’t owe anybody anything.  I ease into my morning cup of tea as if I were Patrick Stewart lounging in the ready room.  Every paycheque that comes in?  That’s ours.

The danger now, as with any reduction in stress in our lives, is that we let the new width and relative calmness of the river we fare allow our paddle strokes to become sloppy.  This is not the time, in the first months of our mortgage freedom, to start piling up the Lego sets, golden-handled frying pans and $500 bicycles that the 8 year old will outgrow by next summer.

We need only remind ourselves that expensive items, and even expensive experiences, will not make us happier.

As per the advice of the Mustachian horde, we cranked open a Questrade account and started dumping that money into Vanguard ETFs via RRSPs, but we can only do that for so long.  The key to our existence now, as we run the last leg of the race to early retirement, is not to let money sit around idly, tempting us with its purchasing power, but to get it stashed away as quickly as possible.  Online brokerages make that bit pretty easy: you can deposit money directly from your bank account into RRSP or TFSA accounts (The Canadian equivalent of Roth thingies and 401 what’s-its-nuts.)

But that’s only the technical side of things.

The heart of the matter is something else entirely.  It’s looking at the debts side of the spreadsheet and seeing nothing there.  It’s also a clear, wide open path from this point to the spot on our life journey where neither of us is ever again obliged to work in order to have the necessities of life.

Early retirement wasn’t an entirely real thing, at least in my mind, despite having seen that the Mustache family had clearly achieved it.  Making our mortgage a thing of the past, however, emotionally solidified the mathematics.  The equations and the spreadsheets, like the one you see above, aren’t nearly as tangible until you actually see the descending line hit the x-axis.  Then, very slowly, you realize that the math was a map of the world as it actually exists.  There actually is money piling up in the bank account.

And if the road to mortgage freedom is real, then the road to early retirement is real, too.

Update: January 2015

This article was written some time ago, as the feeling of being mortgage free was just starting to sink into the Toque family.  Our primary worry, naturally, was that we might be tempted by all this money floating around into becoming the sort of Consumer Suckas that we detest.

I’m glad to report, on further examination, that no such thing has happened.  Our monthly expenses did rise, from $2391/month to $2416/month, which is actually less than inflation.  So being mortgage free came without any statistically significant change in our spending habits.

Separately, what have we done with the money?  Exactly what we said we’d do: it’s all gone to fill up our RRSPs and TFSAs, which still had room from previous years.  As I discussed in a previous article, my priorities were:  RRSP, Mortgage, TFSA, due to my own hatred of debt.  So once the RRSPs are full up for the year, I dump everything into TFSAs.  Sadly, I’m going to run out of TFSA room sometime in the next year or so, necessitating further investigation into “Dividend Mutual Funds” and the magic I can work with them.

[1] – no seriously, that’s what we call a dollar in Canada.

It is now easy to find everything from Mr. Frugal Toque on this blog since he has his very own category.

  • Neil January 21, 2015, 10:30 am

    What a timely post for my family. I struggle on the question of early mortgage pay-off and more investing weekly. It’s a sweet choice to have but a tough call none-the-less. The mathematics tell me one thing but my heart tells me another. The engineer in me says keep that mortgage as long as possible, it’s only 3.5% interest. The other , more emotional side thinks, pay that sucker off ASAP dummy. So far we have been paying as much extra as we can while simultaneously earning 401k match plus a little. I have considered diverting all available funds to the goal. I still might do that. Thanks for the inspiration.

    • Free Money Minute January 21, 2015, 11:15 am

      There is something to be said about a guarantee. One thing you can’t guarantee a lot of times is employment. We just had a few people from out company eliminated out of the blue. Had their mortgage been paid off, it would have been a whole different experience. No mortgage also allows you to invest a whole lot more each month so you can quickly build up a substantial savings.

      • Mark AW January 21, 2015, 11:37 am

        I sometimes debate the same thing, pay off mortgage earlier or put more money into retirement/savings. My current thought is that saving now in retirement accounts will be allowed to compound over more years while also earning more than I save in mortgage interest. BUT, I do understand the concept of less stress and more freedom with a paid off house. I think my wife and I could live off of one income with a scaled back savings plan and tighter budget, while still having the retirement accounts growing.

        • Retired To Win January 23, 2015, 7:31 am

          I even kept debating the question AFTER the mortgage was paid off. Eventually, I reached a compromise with myself: I reassumed just as much mortgage debt ($25k) as I knew that I could pay off at any time out of my non-investment Discretionary Fund. It may sound funny to some, but it must be working for me because I no longer have debates with myself about this.

          • Raj January 3, 2016, 10:43 am

            Unlike you, I’m not a super-cautious saver. I’m a childless 30-something who is happy to have lots of my money in shares.

            So I lust over the current low mortgage rates.

            My advice is to borrow as much as you can via a mortgage (it’s cheap, long-term, and not marked-to-market)

            Invest to earn an after-tax return above your mortgage rate

            Invest the money inside a tax shelter in order to do so

            Be certain you can meet the repayments from your salary. (i.e. Do not rely on your investment to repay the debt).

            Hedge funds would kill for long-term funding at 4%, as you can get on mortgages today. Over a couple of decades shares should deliver far higher returns than that.

            So that’s a big reason why I’d love a huge mortgage – alongside its usefulness as a hedge against inflation.

            This is not for everyone. Borrowing to invest, even via a mortgage, greatly increases the risks. Also, these low mortgage rates won’t last forever, so you shouldn’t overstretch.

      • TT January 21, 2015, 1:01 pm

        What if they were in the middle of aggressively paying off their mortgage (instead of investing) and lost their job with a still sizable amount left on the mortgage? Sure they might have an emergency fund but what if that isn’t enough? The bank can foreclose just as easy on a home that owes 50% as one that owes 20%.

        I would rather have my house effectively ‘paid off’ with money sitting in assets that are actually appreciating. You also have your money in a much more liquid investment (getting a second mortgage vs. taking money out of the stock market).

        With interest rates at 4% and the stock market appreciating at about 8% YOY it just makes not sense to me to pay off a mortgage in lieu of investing.

        • Lynda W January 21, 2015, 2:18 pm

          In Canada we have what is called unemployment insurance, or “EI’ for short. A laid off employee can receive up to 55% of their salary for up to 45 weeks. This helps to bridge the gap and the emergency fund issue.

          • Scott January 23, 2015, 7:15 pm

            Up to a max though of only about $500/week or so.

            • Maxim Ч. January 24, 2015, 12:09 am

              Exactly. It’s about $490/week, after taxes.

        • Dr Bill January 21, 2015, 7:13 pm

          TT, your idea makes sense under the assumption that you promise to ride every downturn in the stock market until it returns to the previous high, and that the market eventually returns to pre-drop level in a relatively short period of time. It’s been a correct assumption since WW II. Under that assumption, dollar-cost averaging during the downturns produce attractive returns. But the stock market is not a place for liquid assets. It’s for money you don’t need for twenty or more years.

          I think I agree with you that it’s a good thing to accumulate a cash asset base equal to your house debt (benefiting from the fact that the former is growing while the latter is declining, albeit annoyingly slowly). That would make a house effectively paid off, and you can continue to grow the cash assets for more time until they are TWICE as big as your remaining house debt (continuing to shrink annoyingly slowly), and THEN pull the trigger. The one negative is that the interest payments thereafter represents a spending category called “money that I have to give up for the convenience of maintaining current spending and cash reserves”. It’s not a bad thing, but you have to decide how much interest you’re willing to take out of future spending before you decide it’s wasteful. Some folks vomit when they think about it because the compounding curve works AGAINST the borrower and FOR the lender; these people decide to cut the emergency reserve in a calculated risk to reduce the money they are giving away to the lender. Your point about the lender’s power, in fact, is support to many that they want to get out from under that oppressor as soon as possible, if not sooner. Keep in mind that Mr. Frugal Toque’s payoff curve represents FREEDOM TIME earned–A CENTRAL Mustachian principle.

          Personally, I’m paying mine off as fast as possible while keeping a much lower six-month mustachian cushion as a cash reserve, but I’m retired military and have an income cushion for now. Absent that, I’d get to when my cash and loan balance equal and then pay off half, rebuild some more cash, and pay it off a year later.

          • Joy January 22, 2015, 6:26 am

            Dr Bill,

            “But the stock market is not a place for liquid assets. It’s for money you don’t need for twenty or more years.”

            If this is the Mustachian way I am confused. Seems to me MMM has made it a point to say one should not have their money sitting in the bank. That he himself keeps only a small amount of cash on hand, putting every available dollar to work.

            Too, how can anyone retire in 5 or 10 years if they are not compounding their money? The idea is to live off the 4% withdrawal rate isn’t it? Certainly, one should have a way to protect themselves in a down market. Yet, unless I have totally misunderstood MMM, the stock market via low-cost mutual funds is the place to put your money.

            • David January 22, 2015, 12:13 pm

              I definitely recommend reading through some of the older posts about safe withdrawal and the math behind MMM, since that should clear up some of these questions.

              In short, a HELOC makes a good emergency fund, and there is nothing wrong with having *some* cash or other liquid assets on hand, but it really depends on your situation. The vast majority of your assets should be in the market earning interest.

              As far as protecting yourself in a down market, there’s been a lot written about this, too. The key is flexibility…either finding ways to bring in income, adjusting your spending downwards so you stay within the 4% even as the principal balance drops, or planning in advance for more of a cushion (some folks prefer a 2 or 3% withdrawal rate). Your approach will depend on your appetite for risk, your confidence in your abilities to bring in extra cash if needed, and your spending flexibility (this is why MMM’s annual spending posts always include a barebones expenses total at the bottom, indicating what they could comfortable drop down to by eliminating extras like organic food, vacations, etc.).

        • Chaitea January 22, 2015, 10:55 am

          You can always refinance your mortage as well if you’re in a pinch. I took out a 20 year mortgage on my home so there’s always the option to refinance to a 25 year loan and take out some money if need be.

          I do agree with you though. The Bank of Canada just decreased the borrowing rate by .25 percent which makes my variable interest rate 2.05%. It doesn’t make sense to sink more money into the mortgage. If the interest rates do rise usually they’ll let you add another 10-30K into the mortgage for the year.

          • Jimbo January 26, 2015, 9:01 am

            Not (generally) if you are laid off and need the money…

            • Joe Average February 11, 2015, 1:42 pm

              Isn’t there value in having a roof over your head that is paid off? On one hand sure, you’re earning interest on your investment but if we had another “Great Recession” and your investments tanked and you were laid off or your investments tanked and you had nothing to draw interest off of – – – how agreeable would the bank be to loaning you any money?

              I see great value in paying off the mortgage as insurance from living on the streets in times of hardship.

              I also see the point of not paying off a mortgage any faster than you have to in case your house were to become worthless or worth less than the mortgage balance.

              On the other hand it’s worth alot on a very cold, rainy night so you aren’t trying to find a warm place to spend the night without any money.

              I watched a friend’s retirement plans evaporate during the “Great Recession” and I have heard stories of people coming out of retirement to seek work b/c their investments tanked and they did not have enough liquid assets to pay off a mortgage that for some reason they did not eliminate at an earlier age.

              The markets are not reliable over the short term at all. I’d hate to live in a tiny camper b/c the markets had tanked and not recovered fast enough for my income to be sufficient to live again off of interest alone. If the markets tank then jobs generally get scarce too. Someone who has not been in the jobs market for 20 years (retired early) might not have the skills to compete again with the 30-somethings that had continuous employment.

        • David January 22, 2015, 12:04 pm

          “You also have your money in a much more liquid investment (getting a second mortgage vs. taking money out of the stock market).”

          That just doesn’t make any sense. A second mortgage or HELOC only works if there is equity in the house (with a little wiggle room because banks are stupid, but you get my point). Paying down the mortgage balance increases the potential HELOC/2nd mortgage “emergency fund” while also providing a return equal to the interest payments plus, for many, the cost of buying too much home insurance because the actual homeowner (the bank) requires it. I can’t see any scenario where having a higher mortgage balance makes you less likely to need to take money out of the stock market.

          With that said, I actually agree with you on the larger point. It is probably the best move financially to invest the money. It certainly would be foolish to divert ALL of your money to paying off the house, as it seems the OP was considering doing (!!!!!)

        • Nathan January 23, 2015, 2:06 pm

          What I did was went ahead and paid off the mortgage because I hated that monthly payment and then got a home equity line of credit (HELOC) for when I want to use the money. I got a $175,000 HELOC at a fixed rate of 2.9. If I am not using it, there are no fees, no interest. If I am using it, the interest is tax deductible. I love this option and it really provides flexibility for investments. I bought a commercial property right next to my house with cash (from my HELOC). The interest on my investment is tax deductible and I am loving the extra cash flow from renting out the property. Also, if I lose my job or something and need some of that money that I paid off my house with, I have the $175,000 to draw from at a better interest rate than my mortgage had.

          • Petunia 100 January 23, 2015, 6:18 pm

            Only the interest on the first 100k of home equity debt is tax-deductible. :)

            And please do keep in mind, the bank can reduce or cancel your credit line at any time for any reason. Like say for example, you lost your job.

    • Spectra January 21, 2015, 12:44 pm

      Everyday after I paid of my mortgage I awoke with a lighter load and less stress. Adding to that the reduced stress in my wife, made it priceless. We moved out of the little condo and bought a house when we moved. Now I hate debt more than I ever did before because I got a taste test of that freedom. More than anything it adds an intense goal that focuses you to overcome silly purchases. You may be able to get this with the goal of early retirement but to me that seems more like just throwing money on the pile while paying off the debt is removing a burden. Either way these are the good dilemmas of life rather than do I pay my mortgage or eat.

      • Britni January 22, 2015, 7:17 am

        I feel the same way. The lower the balance on my mortgage drops, the lighter I feel. My fiance and I currently have two mortgages between the two of since we both owned houses before we met. The sum of the balances is somehow even more depressing than I think one large balance might be. But since there are two balances to pay down, at least there is twice the satisfaction of seeing the numbers drop in parallel. We are currently renting out the smaller of the two houses and using the extra income to boost our savings. I’m never sure whether it would be better to add the cash to the ‘stash or push it toward the mortgage. Logically, I know it’s a big game of interest rates and returns, but emotionally the decision to pick the red pill versus the blue pill is pretty scary.

      • Mrs. Healthywealth January 22, 2015, 7:41 am

        “Either way these are good dilemmas of life rather than do I pay my mortgage or eat”

        Great point, and reminder! Sometimes “one” can get so focused on early retirement, reading how successful others are with this goal, that the reality of how privileged we are to even have the means to pursue this goal can get lost.

        • Tom January 22, 2015, 1:08 pm

          Agreed! I was going to say the same thing. Well put Spectra!

      • Jen January 23, 2015, 4:35 pm

        Logical or not, having a paid off home is a wonderful feeling. I am a single mom with a modest mortgage free home. Knowing that I only have to come up with about $1000 a month to live on is a huge stress relief. I make more than that but I grew up poor in a home where we lost our utilities all the time and I can’t handle uncertainty.

    • K January 21, 2015, 2:28 pm

      I paid off my mortgage last month. One of the things to remember is tax status. At the 25% tax bracket, “not paying” a 6% mortgage is the equivalent of 6/.75=8% gain (8% would presumably be taxed down to 6%). It, of course, depends on the tax structure. It would be the equivalent of earning 8% more money (paycheck), but closer to 6/(1-0.15)=7% from the market.

      The other questions are:
      1 – If you had already paid off your house, would you take out a mortgage and invest the money (presumably using investment proceeds to pay the monthly payments) ?
      2 – Are you investing in a “guaranteed investment” such as a CD or bond? Your “in the pocket” rate, from above, is likely higher than the product that you are purchasing.

      • David January 22, 2015, 12:19 pm

        At 6%, paying off the mortgage is pretty much a no-brainer. The market might gain a bit more, on average, but the 6% is guaranteed. I think most folks now are down in the 3-5% range given the lower interest rates over the past several years, making this a much harder decision. I’m at 3.5% and would love to “own” my house, but have a hard time justifying it.

    • tallgirl1204 January 22, 2015, 8:54 am

      Just have to note: KEEP THE MATCH. Everything else can go toward the mortgage, but KEEP THE MATCH. That is a 100% return, and even a bad mortgage rate can’t top that. However, I totally support the rest of your plan. We have $100K left on ours, at 3% interest, and I am also toying with the idea of paying it off– this is indeed a timely article.

    • Craig C January 23, 2015, 12:44 pm

      I went through this debate last year, and made a logic but reasonable compromise.

      I stopped paying extra on the mortgage, and instead bumped up my participation in our stock purchase plan at work. It’s pretty sweet…at end of each 6 months, they take your contributions and buy company stock with it…at 85% of the current price. It’s essentially a guaranteed 15% return, so I’m putting 8% of my salary into that and another 14% into 401K .

      My plan is to keep up with this until I have enough to pay off the mortgage in full. I’ll reach “mortgage free” MUCH faster this way than simply paying extra on e mortgage each month, since my mortgage is at only 3.00% (15-year). If you don’t have a sweet Emc oloyer stock plan like I do, an index fund should still get you far greater returns than what is “saved” by paying off the mortgage early.

      You can even track how close you are to “mortgage free” in the same way….the only difference is that instead of watching your mortgage balance shrink, you watch the gap shrink between the mortgage and the “mortgage payoff fund.” The excitement is the same, trust me!!

      Most likely, I’ll retire at the point I pay it off, which I expect to be in 2-3 years, when I’m 49-50.

      But who knows…depending on how my plan goes, I may decide to “let it ride” and NOT pay off the mortgage early, when the time comes, but as others have said, there’s a definite appeal to “mortgage free.” We’ll see…

      Happy saving!!


    • James January 25, 2015, 4:17 pm

      Hi Neil – sadly I am not an engineer and I can hardly add up. But I have a Protestant devotion to saving which meant that I paid off my mortgage without thinking about it first some seven years ago now. I will say, if it helps, the psychological benefit of having no debt should not be underestimated; further, now that my wife has gone back to work as our son has got to the age of three, we are motoring along and saving 30% of our gross income into investments – this year’s yield is 7.3%, better I suppose than housing in Canada, which has yielded at best 3-4% this year, not counting carrying costs. Like I said, I am an arithmetical moron and not much of an investor, I just took this route because it seemed like the right thing to do. Cheers – James

      • Alex April 29, 2015, 11:47 am

        You’re right about a mortgage payoff being a psychological benefit, but it’s different from other psychological benefits in that it has definite numbers attached to it. The cost of my mortgage isn’t just 3.75% per year (30-year fixed in the U.S.); it’s that, PLUS the bank’s ability to take away my house if I don’t pay.

        How much is that second part worth in actual dollars? Not sure, but you could approximate it based on how much the same bank would charge me for an unsecured loan over 30 years. It probably would be up around 16%. It’s worth that much to the bank to put this psychological pressure on me to make that monthly payment. I’m not sure I like that kind of pressure.

        That’s not to say that I would gain that much in actual dollars by prepaying. But my point is that there’s more than just the interest rate at stake here. Having said that, I agree that it would be foolish to do something like pass up free money in the 401(k) in order to prepay. If interest rates on CDs or other fixed-rate investments went somewhat above my mortgage rate, it would make sense to stop prepaying and buy a CD. But until we reach that stage, I’ll prepay some and save some. My ambition is to pay it off before I retire in 22 years.

  • Brett January 21, 2015, 10:31 am

    You’ve inspired me to go into “Kung fu spreadsheet mode” myself. Large, specific goals are so motivating!

    Great article!

    • Eddy Adams January 22, 2015, 6:07 pm

      Brett, look into using You Need a Budget. As recommended by Mr Money Mustache, it’s a budgeting/spreadsheeting program designed for the 21st century. You do have to manually input your purchases, but it makes you hyper-aware of what you’re spending where.

  • BCB January 21, 2015, 10:31 am

    “Honey? We can beat this fucking thing into the dirt by the end of next year!”

    Another laugh out loud moment bringing uncomfortable silence to my co-workers courtesy of MMM et al.

  • Eldred January 21, 2015, 10:32 am

    Congrats on being totally debt free! That has to be a GREAT feeling…

  • Jeremy January 21, 2015, 10:39 am

    Congratulations! Anybody that can mention Han Solo, Crown Royal, and Mr. Mister in one blog post deserves accolades of the highest degree

    • Mr. Frugal Toque January 21, 2015, 11:21 am

      What, no love for Captain Picard?

    • Micah January 22, 2015, 8:38 am

      The mustashian thing is getting Costco’s new Kirkland Signature Blended Canadian Whisky – $20 for 1.75 liters! And I think it tastes even better than Crown Royal!

      • Mr. Frugal Toque January 22, 2015, 8:56 am

        Hm. The only way I could taste your assertion would be to travel to the United States and purchase some of said product. In Ontario, only specialty liquor stores (LCBO) can sell liquors.

        • Self-Employed-Swami January 22, 2015, 10:21 am

          We have Costco Liquor in Alberta. Mmm. Their vodka is also superb.

        • Scott January 22, 2015, 10:24 am

          You might have some luck at the Costco in Gatineau. I haven’t noticed whisky at the Costco’s here in Montreal, but I haven’t looked for it. They definitely have a lot of beer and wine.

  • DC January 21, 2015, 10:40 am

    “This is not the time, in the first months of our mortgage freedom, to start piling up the Lego sets,”
    Do not shun buying Lego! Lego is a great investment area that allows for great return rates if you know what you’re doing. If you’re up to deal with packagings and hunting for sales, it’s a sweet way to make 20-50% returns on the money you invest. For me it’s a hobby that makes money :)

    • Hunniebun January 22, 2015, 7:52 am

      Can you explain further DC? We must have 2000 worth of lego in my house, with all the boxes and pieces separated. We have sold some of them…but usually at 50% of the original price. I’d love to know how to actually make money on this obsession! LOL!

      • Mr. Frugal Toque January 22, 2015, 8:57 am

        I imagine DC has to buy them on sale, keep them sealed, and resell them?

        • DC January 22, 2015, 9:18 am

          Pretty much that, yes. Sets that are opened also sell well depending on what you have and its condition.

      • DC January 22, 2015, 9:15 am

        No problem. Lego releases sets seasonally and retires them after 2 years (more or less) so there’s a lot of potential for return once the sets are sold out. Collectors or casual buyers have to pay more (usually more than the price at retailers) to get the sets they want.
        Lego usually retains its value even if you’re selling individual pieces. If you’re selling 50% off you’re losing money. 50% off is what I look for in supermarket sales and then I flip and sell them (usually after they are retired) at their retail price or more to finance the sets I want. It’s an expensive hobby that doesn’t hurt my wallet because my investments have paid for my acquisitions so far. My next step is to be more serious and stop buying Lego for myself and treat it as an investment product like stocks.
        You usually can get what you paid for them but it depends on the popularity of the theme -for instance, Star Wars and Super Heroes are always popular, Lone Ranger or Prince of Persia aren’t. There are a ton of factors that affects the price like popularity of the theme, the set, minifigures inside, years after retirement, original price, availability in Europe or US (some things are released in EU that aren’t in the US and vice-versa), etc. etc.
        Like in every second-hand market, the prices also depend on the condition of the set. If you have all the pieces, great. If you have the boxes, instructions, event better. It’s still sealed in the original box? Awesome! There are some collectors that only want the minifigures so, sometimes, you can get more money if you buy a set, sell the minifigures separated from the rest. The rest you can sell as it is or sell individual pieces. There are others who buy used sets and look for boxes and instructions to increase the price they ask for but it’s riskier.
        Hell, even drug dealers accept Lego as cash. Once a drug dealer accepts certain things as payment, you know you have cash in hands: http://www.vocativ.com/underworld/crime/lego-heists/
        Some resources for you to see if what you have at home is worth something:
        http://www.bricklink.com/ – the site is old and hard to navigate but it’s the biggest marketplace there is. Insert the set number (4 or 5 numbers on the front of the box) and see how much it’s worth. Pay attention to the descriptions, there’s a ton of different conditions (no box, no minifigures, sealed, opened, etc.).
        http://www.brickpicker.com/ – great resource to know how your investments on Lego are doing and the forum is super helpful.

        • Eddy Adams January 22, 2015, 6:14 pm

          That was mind-opening, DC! Using collectibles as an investment is something completely new to me. It makes sense, though. Those bricks are built so well that depreciation would be minimal even with moderate usage. I’m sure parents of young kids would be very interested in this avenue of revenue.

          • DC January 23, 2015, 1:28 pm

            Glad I could help :) Using collectibles for investment can be tricky, careful with the area you dive into. Comics for instance it’s a lottery (you never know what will go up and what will depreciate). Lego is one of the most robust I found because of the low probability of depreciation.
            Another tip to save money on sets is to buy used and sell it used when the kid/you don’t want it anymore. With some luck you get more than you paid for it:)

  • Diane C January 21, 2015, 10:45 am

    Dissenting opinion, here. DH and I paid cash for our house in 2013. We are FI. DH still works and I am retired. We have never had CC debt, but this is the first time we’ve had no mortgage. We thought it would be awesome to be mortgage-free, but with rates so low, we are having extremely strong second thoughts. We are older than most readers, so we remember when rates were much higher. Every time we see these amazingly low rates, we debate about getting a mortgage. We feel like we are leaving money on the table. We could use the money to invest in additional rental property, or add to our long-term, balanced portfolio. In a few years, when rates have mormalized, we may be kicking ourselves for missing this chance.

    There is no single no right answer. I’m just offering our experience up in case it’s useful to anyone else. I will also add that it’s never a wise idea to pay off a mortgage before fully loading any and all available retirement vehicles and loading up a taxable investment account if you wish to RE. The sooner you start saving for retirement, the fewer actual green soldiers you have to set aside from your paycheck, giving you more inflation deflated dollars for mortgage payoff later. Win-win.

    • Derek R January 21, 2015, 11:13 am

      I agree with Diane on this. But if you have paid it off you have options. Something to bear in mind for Canadians is that if they take out a mortgage/LOC on a mortgage-free property specifically to invest, the interest payments are tax deductible. That’s probably true in other countries too but checking the tax implications is obviously part of the due diligence that has to be done if anyone wants to go down this route.

      It’s also a bit different from the original mortgage used to buy the house because, provided that you invest in a low-risk portfolio, you can change your mind and go back to being mortgage-free more or less immediately, by cashing in the investments and paying off the mortgage.

    • peachfuzzstacher January 21, 2015, 11:53 am

      Using a mortgage for a rental property (or multiple properties) would be an excellent use of low rates, ESPECIALLY if you set up an LLC for your rentals. This way, you as people will be mortgage free, but you can still take advantage of a 4% rate.

      • Eldred January 21, 2015, 10:07 pm

        How would you set the LLC to get a mortgage when as a new entity, it wouldn’t have any income yet? Maybe I’m just not understanding this…

        • peachfuzzstacher January 22, 2015, 10:22 am

          You wouldn’t, not right away. If it’s your first one or two, just paying for the umbrella insurance would be a better move. If you can get the mortgages to transfer later, LLC would work out.

        • b January 22, 2015, 6:57 pm

          The LLC is a company. It doesn’t have to have income. It just provides protection against a lawsuit. A lawyer helps you set it up.

          I’ve known a few bankers and none of them would ever consider a non-recourse loan on an single owner/spousal LLC. I’ve gotten several loans through my LLC, but have had to personally guaranty them. Rates are pretty good, but not as good as personal home rates.

          • Eldred January 23, 2015, 9:44 am

            Thanks to B and Peachfuzz for those explanations. That means I *still* can’t get any rental property, because I can’t afford another mortgage. 10 years to pay off my primary residence…another 10 to save up if I want to pay cash…that means I’ll get my first rental property at age 72. And then ANOTHER 10 before I have enough saved to retire? Ack…that isn’t work-able…

    • Patrick January 21, 2015, 1:50 pm

      Just a note that this argument is much less favorable for Canadian readers. It’s impossible to get a 3% rate fixed for 30 years in Canada. It’s hard to explain to Americans, but basically your mortgage is set as if your rate is 3% for 30 years, but the 3% rate is only locked in for 5 years.

      Many people today are buying homes they could not possibly afford if rates went up, and if rates do go up, well here in Canada the housing market will crash because of all the defaults on people being forced to refinance a $500,000 mortgage from 3% to 12%, for example.

      Personally I’m counting on such a crash, because I’m young and will never be able to justify paying $500,000 for a home my parents bought for <$150,000 when I was a child. Inflation would make that house something like $200,000-$250,000 which is what I would hope to pay.

      • Cathy January 21, 2015, 5:04 pm

        A Canadian housing crash would make Canada an excellent early retirement destination, but my crystal ball predicts that if and when interest rates rise in Canada, it will be carefully done at a glacial pace so that it’s a more like a 3% to 3.1% refinance, rather than 3% to 12%. It would be an irrational bit of financial policy to dramatically raise interest rates, for the exact reason you’ve said. That said, for those of us keeping our money in USD, Canada is already 20% cheaper than it was just a couple years ago, and rapidly falling.

        • Patrick January 22, 2015, 6:39 am

          The end of cheap energy would cause pretty huge increases in food prices (as Jim Kunstler says, current agriculture is the process of turning oil into food) as well as transportation prices and the price of almost every other commodity, which would skyrocket inflation and force the BOC to raise their rates dramatically. Whether or not it would be severe enough to cause a housing crash is hard to say. I can’t predict the future either but I’m thinking when The Long Emergency really ramps up, anything is possible.

      • MrFrugalChicago January 22, 2015, 7:08 am

        This is common in the US. Called an ARM. 5 or 7 year rate lock then the rate can move.

        Right now the spread is like 3.75 for fixed vs 3.125 for arm.. So a very small savings and a risk of a rate as high as 10 down the road.

        • Patrick January 22, 2015, 7:50 am

          It’s funny because the “Adjustable” rate mortgage in the US is the same as the “fixed” rate in Canada (usually fixed for 5 years) and the “variable” rate mortgages in Canada are variable on a per-day basis. Like, the BOC just lowered their rates by 0.25% and the VRM people instantly see savings.

          There have actually been studies done for Canada, and historically taking a VRM is beneficial something like 60-80% of the time. With fixed rate mortgages (which, in Canada are only fixed for 5 years usually) you’re essentially buying insurance against future rate hikes. I trust the banks know more about interest rate hikes than I do, so they’ll build a profit margin into the spread most of the time and I’d rather not give them that. I’ll go variable if I ever do buy a house.

          It’s something like 3% for a 5 year lock in, and 2.4% for variable. 25 year lock in today would be close to 9% I think. Never has Canada seen 25 year locked in rates at even close to 3%.

          • Dave January 26, 2015, 11:13 am

            We have a 2.65% 5 year arm and we are STILL paying it off before the 5 year reset. Hi Quality Sleep is pricele$$

    • Dana January 22, 2015, 3:28 pm

      Hi Diane C, I was in your camp a few years ago. I had paid off the mortgage and then after a year debt free decided to borrow money against our house to buy a bigger Rental house. It was not so neat when the housing market dropped. I was able to loose twice the amount of equity since I was now leveraged 2x in my new larger rental house. When we finally paid off the mortgage for the second time three years later, I vowed to never be in debt again. Debt free is stress free.

    • Darren January 24, 2015, 10:17 am

      I see that you are really working the numbers here, and are correct in a technical sense. One thing that I feel you are missing is that Mr. Money Toque said “Let’s kill this thing in a year”. His money was freed up very quickly to start working in other investments. If his payoff schedule was longer and he was dragging out the process I would see your point better. Also, the meat of this article is not about dollars or loonies but about human psychology. As much as we like to try, people are not typically rational with their money. How we “feel” about our financial situation is as important a factor in our financial lives as making rational choices. A paid off mortgage gives a person more options and a greater feeling of freedom. My two cents or 2% of a loonie’s (sp?) worth.

  • The Investor January 21, 2015, 10:49 am

    There’s is one reason why you would choose to invest instead of making overpayments on your mortgage, and that’s because you hope it will leave you richer!

    Historical market returns suggest that over a long period like 25 years, you’d be very unlucky to lose out, provided you invest regularly in equities and stick with it through the tough times.

    If shares do very well for a decade, say, you might want to rethink your strategy and start paying off your mortgage instead, rather than push your luck in what might by then be a stock market bubble.

    You wouldn’t have to sell out of your equities – instead you could simply direct your fresh savings towards paying down the mortgage.

    If you wait until you’ve fully paid off your home loan before investing, you’ll have a shorter time horizon to benefit from the long-term smoothing of the return from shares.

    It takes a while to get used to volatility in risky assets. Starting young can help. This means investing alongside paying the mortgage.

    Personally, while interest rates are low I’d run a (manageable, affordable!) mortgage and invest in equities, at least for as long as I judged shares looked good value. I’d possibly even consider using an interest-only mortgage to do so, which really ramps up the risk factor.

    But that will not be the right decision for most other people, so do weigh up the pros and cons of paying off the mortgage instead.

    • Mr. Frugal Toque January 21, 2015, 6:41 pm

      Just to be clear, my investing strategy was to *always* max out the RRSP allotment, as this keeps my current income taxes as low as possible (and in parts of my career also came with a kick-in from my employer). Once that was done, only then did I start pumping extra money into the mortgage. The reason for this was that the RRSP so far outweighed the mortgage interest (especially when there was a 50% employer kick in) that it overcame my slightly irrational hatred of debt.
      However, once the RRSPs were maxed, the small difference between investing in a TFSA (7%) and dumping money into a mortgage (4% ish), didn’t seem as important.

      • Vincent Low December 5, 2017, 10:49 am

        When you say RRSP , is that your 401k (or Canada equivalent) AND traditional IRA? or just the 401k

    • Dylan Smith February 24, 2015, 5:36 am

      I did a hypothetical exercise on equities: I considered three people:
      Joe – hates the banks, fears the stock market – stuffs his money under the mattress
      Jane – Wants somewhere safe, and somehow magically finds a savings account with a 3% interest rate (way higher than any savings account I’ve ever seen).
      Fred – Decides to invest in the FTSE-100 (the three here live in the UK).

      The date they start: December 1999. The FTSE 100 is at its highest ever level – in fact, as at the time of writing, it has never again reached the level it was on December 31 1999.
      All three have a lump sum of £30,000. Joe stuffs it under the mattress. Jane puts it in her new savings account. Fred buys the FTSE-100 and is really unlucky – he buys at its all time high price.

      Every month after this, each of the three save £1000. Joe stuffs another £1000 under the matress, Jane puts the £1000 in savings and so on.

      We look at their stashes today, Feb 2015.

      Joe now has 212,000 under his mattress.
      Jane now has £278621 in savings.
      But even though the FTSE 100 is still lower than it was back in 1999, Fred has £333100 (assuming an average dividend of 3%, that he has reinvested). Even if Fred’s dividend was only 2%, he would still have £308,000 – which is quite a bit more than Jane got in her astoundingly good savings account.

      And that’s with Fred investing in what was arguably 15 years of a bad stock market with two crashes (dot com bubble crash, 2008-2009 financial scandal crash) and which has never reached the peak at where he started investing.

  • Gen Y Finance Guy January 21, 2015, 10:59 am

    Loved coming across this post just as I published on my blog my own plan to pay off my mortgage in 7 years (or less, which is the real goal).

    I totally believe that yes, the 4% of whatever you interest rate is, is lower than the “potential” you have in other investments. But like Mr. Mustasche said “From a rational perspective, sure, stocks and other investments will tend to return more than the 4% you’ll save on mortgage interest. But the mortgage “return” is guaranteed, and fully non-correlated to the stock market. Plus your home will always be yours regardless of what shenanigans the financial system might pull.”

    I think there is room in everyone’s investment portfolio for some safer investments. Think of it this way, if you have any money in government bonds say with 20-year duration…they are paying something like 2.5%. If your mortgage rate is higher than that, I think its a good place to redirect your money. Rates are likely going to stay low for a long time, but if they do go up and you need to cash out of bonds you can expect to take a big hit from your capital due to the inverse relationship of interest rates and bond prices.


    • peachfuzzstacher January 21, 2015, 11:57 am

      Nice way to put it, Gen Y, especially the comparison to “safe” bonds. I personally put a little here, a little there (stocks and mortgage). Paying off the mortgage early also does free up some cash flow for when you’re ready to take on a possibly riskier venture, like starting a business or purchasing rentals in a high cost area.

  • Catherine Jean Rose January 21, 2015, 11:00 am

    Well written and inspiring….I’m down to the final 55K on my mortgage balance…this makes me want to kill it quickly.

  • jamie January 21, 2015, 11:02 am

    I have the same attitude towards debt. It is nice to read stories like this. It makes me feel like the goal can be achieved.

  • Chris January 21, 2015, 11:19 am

    yeah, our mortgage interest is between 3% and 3.375% (we have a note and a mortgage). On the one hand we really want to pay down the mortgage because it’s a large part of our expenses, but on the other hand it’s such a low rate that we should be able to earn more in stocks. Plus, paying off the mortgage has even less benefit due to the mortgage interested deduction we get, since that will go away if we pay off the mortgage.

    • Mr. Frugal Toque January 21, 2015, 11:26 am

      And I totally get that point of view, too. The 3 or 4% we were paying on our mortgage would have turned us a tidy profit on the stock market (though not, particularly, the last two quarters of 2014). We’re paying a self-imposed tax to not be beholden to a bank, an irrational move. Not as irrational as it might be, though, in the U.S., with the mortgage interest deduction.
      Reverse mortgages do exist in Canada, and their interest is tax deductible. I think this only begins to make sense if you’ve used up all other tax shelters.

      • Lynda W January 21, 2015, 2:29 pm

        Sorry to correct you FT, but reverse mortgage interest is deductible in Canada ONLY if the mortgage proceeds are invested (and the rules are quite specific – see CRA website for details). The reverse mortgage proceeds are received tax-free however, you don’t have to pay taxes on the money you receive.

      • K January 21, 2015, 2:39 pm

        The tax deduction for a mortgage in the US is really overstated. I had about $80K/year in income, with a $100K mortgage and was not able to deduct it. The standard deduction is quite high, and writing off the interest isn’t as good as many people make it out to be.

        • Mr. Money Mustache January 21, 2015, 4:10 pm

          Good point, K – I have always been surprised with how big the “standard deduction” is in the US. Mortage interest is really only tax deductible for high-income people: Even a $250k salary and a $400k mortgage isn’t saving you a ton at today’s interest rates. The economists would say it’s a regressive rather than progressive tax policy.

          • Randy January 22, 2015, 12:58 am

            This is one of the biggest surprises to first-time homebuyers, at least in my experience. The financial media paints the interest deduction as some kind of free lunch that renters are missing out on but in my personal opinion that is borderline dangerous financial advice.

            All of my friends who are buying houses right now are talking about the deduction like it’s the primary selling point of the home purchase itself. One guy is even using at as a justification to buy wayyy more house than he can afford, like it is actually going to save him money somehow. In actuality, they are very likely to see very little to zero of that deduction. And if they are married filing jointly then they can very likely forget it.

            I keep trying to explain this to my friends, but they are blinded by the skyrocketing prices in our area right now. The last time I heard this much talk about the awesomeness of the mortgage interest deduction was when it came out of my own mouth while I was signing the paperwork for my first home purchase in mid-2007, and we all remember how that market turned out.

          • Matt E January 22, 2015, 5:10 pm

            MMM – I’m a huge fan and recent convert. I still really struggle with the mortgage question. We are at 3.75% fixed and live in California. Since we itemize our deductions, the after-tax effective rate is 2.35% after taking into account Federal and state deductibility.

            We are socking away a decent chunk of change each year, after maxing out my 401k. So we could certainly start to chip away at our SF Bay Area-sized mortgage. And most importantly it is our goal to be FI in the next 10 years.

            Yet I have a hard time justifying 2.35% guaranteed and very illiquid versus more liquid with a likely 4-5% return after tax. I’m a big fan of CA municipal bonds so that is why I am confident of 4-5% after tax.

            Likely there is no right or wrong answer here, though for my personal situation it seems like more money in investments and enjoying the mortgage deduction is the right call.

            If we move just about anywhere else in the country, we can immediately have no mortgage. Yet I still think I would get a mortgage at these rates… Call me crazy!

          • Dutch&Thrifty January 23, 2015, 11:22 am

            I disagree that US mortgage interest is only tax deductible for high-income people. It is also deductible to many people of moderate income who tithe or give to charity.

            Between the tax deductions for charitable contributions and state income tax, my family already exceeds the standard deduction. Without going into too much detail, our income and mortgage balance are both less than half of your example of $250k income and $400k mortgage.

            • ArmyDoc January 24, 2015, 1:49 pm

              @D&T, I’m with you, but you are mostly correct in the early years of a mortgage for most people. Interestingly enough when you are in MrFT’s “original” situation of only 5-10 years left on the mortgage (if you only pay the minimum due), each payment is more principal and less interest and your mortgate deduction can quickly fall below the US standard deduction.

          • Doug January 28, 2015, 3:17 pm

            The mortgage interest deduction (“MID”) is worth interest paid * r, where r is your marginal tax rate (colloquially known as your “tax bracket”). Too many people think of the MID as a credit, i.e., a dollar-for-dollar reduction in tax. It’s not. If you are in the 25% bracket, and you paid $5000 of interest, the MID saves you $1250, not $5000. A subtle but important point that layman often miss.

            As far as the MID being “regressive,” I disagree. People with higher incomes benefit more from the MID because (1) they usually pay more mortgage interest, and (2) they face a higher marginal tax rate. The “upside-down subsidy argument” that many economists make is really just a tautology–when you have a progressive rate structure, those who face higher rates benefit more from deductions than those who face lower rates. There’s nothing per se unfair about this state of affairs, and it does not result in high income individuals facing lower effective tax rates than low-income individuals (the true definition of a regressive tax). The bottom 50% (approx.) of earners pay $0 in federal income tax annually, so it’s not as if the rich are shifting the burden onto the poor via the MID.

            We can still question the propriety of any given deduction (sometimes called “tax expenditures”). In fact, most believe the MID is a terrible policy, and I agree with that sentiment. But not because it’s regressive–that doesn’t make any sense. It’s bad policy because housing and consumption, and personal expenses (consumption) shouldn’t be deductible under an income tax. The MID amounts to a subsidy which distorts people’s decisions and artificially inflates the price of housing, reason enough to detest it.

        • Doc Hawk January 23, 2015, 9:44 am

          It really depends a lot on whether you have other deductions. If you don’t have a lot of charitable giving, education, medical, or dependent care expenses, mortgage interest deduction will definitely not get you over the standard deduction… unless you have a particularly unfavorable rate and are in the early years of repayment in a longer term loan, when interest makes up the bulk of what you are paying.

    • Reed January 21, 2015, 1:16 pm

      While I sympathize with the notion that you can make more in stocks, I don’t see the interest deduction as a strong argument. In order to get the deduction, you’re paying the interest, which is far more than the deduction gives you. I’d rather pay zero interest than pay interest on a mortgage for a smaller deduction.

      • Chris January 21, 2015, 2:56 pm

        No doubt that it’s best not to pay interest and not get a deduction, all else equal. But of course, things are not equal, you either pay off the mortgage and have less liquid assets or you don’t and have more.
        Anyway, on the 3% interest I am paying, the mortgage interest deduction allows me to pay less taxes (a reduction of ~15% of the 3% interest, or about about 1/2% so really my “actual” interest being paid is around 2.55% instead of 3%). So the benefit of paying off the mortgage from an interest saved perspective is lower and the comparison to stocks is slightly worse.

      • Dmitri January 23, 2015, 8:26 pm

        The interest deduction decreases your cost of money on the loan. And since you’re investing the funds instead of pre-paying the mortgage, your net return increases because of the interest deduction.

  • Ron S. January 21, 2015, 11:22 am

    I started in early 2011 with a 15 year fixed mortgage of 288K at 3.85%. The first 2 years I threw 10K and 20K at the beast a few times because I just couldn’t stomach seeing the $900 per month in interest I was paying. I refinanced in early 2013 to a new 15 year mortgage at 2.625%. After 1 or 2 more big payments, I stopped throwing extra money at it because my retirement accounts were anemic and now the mortgage is at 143K.

    It is a tough call for me. I loved the feeling of getting through the mortgage quickly. My retirement accounts are improving and I have 11 years left paying 2K per month on my mortgage.

  • Marcie the frugal accountant January 21, 2015, 11:23 am

    I often hear the argument against paying off a low interest (3%) mortgage early as a bad decision since you are making an after tax return of only 3%. However, sometimes I look at it as if I am saving 5 years off of my mortgage at some date in the future, perhaps 20 years from now. What if the mortgage rate is 8% in that time? So you could actually be making 8% by having such a great opportunity to reduce the principal now.

    • tallgirl1204 January 22, 2015, 9:06 am

      I’m not sure I understand this. If you have a fixed rate mortgage at 3% (U.S. “fixed rate” definition being used here), why would it matter if interest rates are 8% later? You’re still at 3%. Unless you’re talking the Canadian “fixed rate” or U.S. ARM?

      Otherwise, this reads kind of like the joke about “I saved $600 on this discounted t.v., so now I can buy an I-Phone with the money I saved.” Or is this just a way to justify it for yourself mentally (I am all about self-justification as long as it doesn’t lead to pain later.)

      • Marcie January 22, 2015, 6:24 pm

        It matters if you still owe on your home when interest rates rise to 8% because you didn’t pay off your principal sooner.

        • Craig January 23, 2015, 2:09 pm

          But as tallgirl1204 said, if you have a FIXED rate mortgage today at 3%, then your rate will still be 3% in the future, even if the “going rate for new loans” has risen to 8%.

          Well, unless you’re foolish enough to refinance at a HIGHER rate… ;-)


          • Marcie January 26, 2015, 3:31 pm

            I am in Canada and I forgot maybe it isn’t typical to have a 3-5 year term fixed or variable mortgage amortized over 25 years? That is what I was thinking. When your five years are up you have to go with the new rates. I don’t know anybody that chooses a term over 5 years, maybe 10 but that is rare.

    • Venturing January 22, 2015, 5:55 pm

      Very true Marcie, eg a lump sum of $100k paid now effectively pays off the ‘final’ $100k of the mortgage and so you avoid paying what ever the rate would have been in the future.
      However, if the future mortgage rate reaches 8% then there’s a good chance that the stock market returns will have increased as well to maintain the spread between the two rates. So even if the interest rates/returns change the argument for investing vs paying mortgage still holds.
      Personally we have opted to pay out the mortgage. Mortgage rates in NZ are high compared to most other countries, around 6% at the moment and there are no tax advantages to having a mortgage.
      I also like knowing that our financial situation is virtually unshakable. As long as we own out house outright we can get by on very little income. And the most likely time to lose your job, and therefore you would want to draw on your investments, is precisely when the economy is doing badly and you shouldn’t be selling investments.

  • KES January 21, 2015, 11:24 am

    At this point our mortgage is an afterthought. Until we can save enough to be filling our 401k, the mortgage will have to remain. It’s at 3.875%, so even if we are maxing everything out, I might not pay it down fast.

  • Jason G January 21, 2015, 11:28 am

    This is definitely a topic that is based on personal choice. Some people are just more comfortable with additional risk and having 200k or more sitting in an asset that appreciates a couple percentage points a year is not necessarily the best option if you compare the mortgage interest rate with most long term investment returns. On the other hand when a persons earning potential is severely limited due to age or many years out of the work force I can see the argument for paying off the mortgage.

    • Mr. 1500 January 21, 2015, 12:23 pm

      Agreed on the “personal choice” statement. Some folks hate debt of any type. I hate it too, but decided to stick with a mortgage of 3.25% over 15 years because of the historically super-low rate.

      Because 15 years is such a short period of time, I don’t think it will make much difference. The markets could just as easily have a nice bull run over the next 10 years (I’ll look like a genius) or they could sink into a recession (I’ll look like an idiot).

      It’s far more important to live in the smallest, cheapest and most efficient home you can tolerate than to lose sleep over the debt.

      With all of that said, the day I own my home free and clear will be a very, happy day. Congrats Mr. Toque on being debt free!

      • Mrs. PoP January 21, 2015, 4:27 pm

        We’re in the same boat as Mr 1500 on this one. Our 15 year, 3.25% loan is one we don’t mind hanging around. The bigger bang for the buck is in not over-buying your house to begin with AND making sure that the funds that you *could* destroy the mortgage with are being funneled directly into other investments (for us, liquid investments that we could cash out to pay off the house if we ever really wanted to).
        I also consider the drop off in our minimum required outflow by ~$10K in 2026 (when the mortgage is paid off) to be an additional part of our safety margin built into our FIRE plans.

  • Texas Jim January 21, 2015, 11:28 am

    The real key to killing mortages is to start right away. My original 30 year fixed at 8.75% payment was $425/mo. It was actually less than our rent so it was easy to just write the check for $500. That extra $75 knocked 4-6 weeks off the far end every month. I also added to it whenever possible. It was paid off in 12 years. Ever since, the left over $500 has gone directly into investments. Twenty-five years later I am retired and comfortable. My now wife paid hers off early using a similar strategy that also included making 50% payments twice monthly. Finally I would suggest the author above gets serious about investing education. There are so many more opportunities besides mutual funds for income. Take a look at ORC, PSEC, PHK, GLAD, HIX, AI, FULL and a host of others.Check out the big list on the dividend detective. But, be sure to diversify.

  • Hugerat January 21, 2015, 11:29 am

    What is a “paycheque?”

    • Mr. Frugal Toque January 21, 2015, 11:37 am

      It’s similar to a “paycheck”, but spelled properly.
      Kind of like “Toque”.
      “Paycheque” can be pronounced “Pay-chuh-KYOO-ee” when near people who spell it “paycheck”.

      • Kris January 21, 2015, 12:55 pm

        ROFL – Awesome!

      • M from Loveland January 21, 2015, 2:11 pm

        Spanish intervention… cheque=check, toque (from the verb tocar)=touch ;)

        • JD January 22, 2015, 12:50 pm

          I always saw his handle as Mr. Frugal Torque. I knew what a cheque was but since I’ve never seen toque used before I just subconsciously added the r. Nice to learn something new about the written language of my northern neighbours.

          • Mr. Frugal Toque January 23, 2015, 2:01 pm

            The toque is the hat I’m wearing. The insulation it provides allows me to use my bicycle in colder weather, thus saving money.
            Therefore … drum roll … “Frugal Toque”.

          • MJH January 24, 2015, 11:22 am

            That’s so funny. I had always done the exact same thing, subconsciously adding the “r” and picturing gears grinding away towards frugality…

        • woodnclay January 24, 2015, 5:16 am

          Adding to the linguistic and spelling discussion; I believe “Toque” (the hat) is from French rather than the Spanish verb tocar. Probably the same is true of cheque…

  • Sam January 21, 2015, 11:32 am

    Ours was just paid off this Dec. Doesn’t feel like its sunk in yet, but it’s likely because I didn’t buy a bottle of Lagavulin to celebrate!

    Anyway, I justify paying it off like this: At a high income and with stock prices high relative to dividends, this is identical to a dividend fund income stream that I don’t need to pay tax on. (in other words, not having to spend 1500* a month is the same as earning 1750 in dividends at 15% tax). This stream of “income” is also mostly uncorrelated** from my stock market investments; if the market tanks, that income is safe**.* I will continue to max out tax advantaged accounts and this year will be applying at least that mortgage pmt to my vanguard taxable account every month.
    *roughly the value of renting my place, less expenses like amortizing a new roof, I am the best “tenant” ever.
    **Asset Allocation, baby!
    ***Even in the 2008, while housing prices crashed, rents did not, the present value of the income stream actually rose due to homeowners being evicted and forced to rent

  • EarlyRetirementGuy January 21, 2015, 11:43 am

    Bought my first house almost exactly a year ago on a 25 year mortgage. Just had the first annual statement through and we’ve paid off 3 years of it already! Those overpayments really add up and mean that you can remortgage at a much better rate. Hopefully this 25 year mortgage will become a <10 year mortgage and we need never worry about being homeless again.

    Sure,; you *could* get a better return from other investments.. but nothing is more valuable than having the security and freedom of being in debt to nobody.

  • Gina January 21, 2015, 11:43 am

    I am 9 months away from paying off a 2nd mortgage, result of a mid-life divorce and it feels wonderful and freeing. I’m getting close to digging thru the couch for pennies! Without realizing it, I’ve been mustachian for a couple years now, validated by finding this site. I am looking forward to crunching the numbers to see what I can do with the first mortgage. Posts like this inspire me to keep on going. I’ve made progress that I did not expect to make.

  • Joe January 21, 2015, 11:44 am

    I love this site and have read every post. MMM has changed my life for the better. This is my first time commenting because the idea of “Mortgage Freedom” is a bit of a pet peeve of mine.

    I understand the reasons why many people pursue mortgage freedom. I was once in a meeting with a client of 9-figure net worth. I suggested he put a mortgage on his home to lock in a low rate and also take advantage of tracing mortgage debt proceeds to the purchase of taxable investments in order to deduct investment interest expense. He balked and said he liked the idea of owning his home outright, and that it helped him sleep better at night. I responded by saying that he doesn’t own his house “free & clear”. “If you stop paying your property taxes, you will lose your home. Since you don’t really own your home anyways, why not get a tax break?” The client ended up executing cash-out financing at an extremely low rate, and used the proceeds to invest in a portfolio of preferreds. The dividends from this portfolio are paying his mortgage and the difference in tax treatment also creates an additional spread.

    My point is, yes… in a perfect world, we would all own our homes free & clear. But this is not possible. Unless you have an allodial title to your property (which is practically nonexistent in the US), you don’t really own your home, even if you don’t have a mortgage since you have to pay property taxes. Semantics & legal verbiage aside, do you truly own something if another entity will take that something away from you unless you pay an annual tax?

    I believe the concept of mortgage freedom does not exist and is a false sense of security and ownership. Since that is the case, one might as well take advantage of the myriad tax benefits our government offers to homeowners and mortgage holders.

    • Mr. Frugal Toque January 21, 2015, 7:49 pm

      Except, of course, for the fact that I do own my home and that the property taxes I pay on it have more to do with maintaining the health, education and other civil services that make it so worthwhile.
      That’s like saying, “You can never really own your home because you still have to buy food. If you stop buying food, you’ll die and dead people lose all their property. So really, in the face of the fact that humans require nutritional sustenance, home ownership is an illusion.”

      • Joe January 21, 2015, 8:30 pm

        I respectfully disagree. Even if property taxes go towards maintaining worthwhile civil services, I think that is irrelevant. Whether or not the taxes fund something worthwhile has nothing to do with the fact that the tax itself still exists.

        Regarding your second point, dead people (at least in the US) do not lose their property when they die. If they did, I (and many others) would be out of business. Very wealthy people whose wealth will outlive them spend a lot of time and a lot of money planning with lawyers, accountants, and financial advisors to figure out where they want their property to go when they die. So if you own something, you own it even if you stop buying food and die because it is part of your estate. So I’m going to stick to my guns and say you don’t really own your home. If you were to pass and leave your child a t-shirt, that t-shirt is your childs’. If you were to leave your child your house, the house is your child’s so long as he “rents” it from the city/state (i.e. property taxes).

        The main point I’m trying to make is that declaring oneself free sans mortgage seems a bit arbitrary to me when tax payments are still due to keep your property. What if a retiree on a fixed income lives in a town where property taxes skyrocket over a 20 or 30 year period? Unfortunately it has happened here in Westchester County and a lot of older folks lose their homes (that they “owned”) when they could no longer afford to pay the ever increasing property taxes.

        I know this is an unconventional way to think about home ownership which is why I felt compelled to comment on here for the first time. I’d be curious what other people think.

        • Leo January 21, 2015, 11:16 pm

          >> So I’m going to stick to my guns and say you don’t really own your home.

          But that is semantics at best. Do you own your car if you paid for it cash? Most people would say yes, but of course you can’t actually drive it if you don’t pay for the licensing so one might argue you don’t. But that doesn’t constitute ownership. Fact is if you have a mortgage the bank has first claim to the house, if you don’t, you do.

          • Joe January 22, 2015, 12:15 am

            I agree with everything you wrote about cars. But the difference between a car & a house is that a car can sit inert in your driveway, unregistered and without insurance. Sure, it can’t legally be driven but you still own it, could sell it, get it registered, inspected, etc. Most importantly, it won’t be confiscated. The same cannot be said for a home. So it’s not just semantics. This is a key difference.

            And you are correct, if you have a mortgage the bank has first claim to the house. Stop paying your mortgage, bank takes your house. Stop paying your taxes, gov’t takes your house. Six of one and half a dozen of the other.

            So if people think they own their homes because their annual required taxes go towards something good that’s fine. If you think you own your home because, hey, it’s all semantics anyways, and we don’t really own anything because you could stop eating or not get a driver’s license…then fine.

            You don’t have to agree with my argument, but I don’t think we need to over complicate what I’m trying to say. To me, ownership is something that you own outright, and you are indebted to nobody in order to maintain ownership of that something. So when you have a home, you are indebted. Call it a mortgage payment, call it taxes, but you owe money and if you don’t pay you lose your property. I don’t consider that ownership but maybe I’m missing something. People pay off their mortgages and are magically happier and don’t think about property taxes? How does this argument hold up when annual property taxes are greater than annual mortgage interest expenses?

            • Joy January 22, 2015, 7:06 am


              I see your point. But, if we look at life that way we are not a free people either. We all have to pay taxes or, be poor enough to be exempt.* Too, we all have to eat and, drink water. Truthfully, the house is an asset that can be transferred or, sold. Yes, taxes will be part of the equation. But, does that mean you don’t own it?
              If you can sell it, I’d say you own it.

              If you don’t own a home, you will be paying rent forever. Unless, you decide to be homeless. Rent in my part of the country is much higher than paying taxes on my paid off house.

              Owning a home you can choose to rent out the home or, have someone move in and, pay rent. My neighbor who is retired decided to let a young couple move in his house and, help with costs. He can choose to do this because he owns his home.

              *Yes, I know one can be wealthy and live off of less, in order to avoid taxes.

            • Tara January 22, 2015, 9:48 am

              I agree with Joe, you never really own your home due to property taxes. You just pay a lower «rent» than someone who is paying a mortgage on top of the taxes. It’s still worth it to me to own a home though, because I can remodel it how I want, have pets, and sell it if I need more money. I enjoy having a home where I can stay as long as I can afford it and not worry about a landlord forcing me to move at his whim. There are benefits, but owning the property truly free and clear is not one of them, as that is simply not true.

            • K January 22, 2015, 5:40 pm

              What follows is the same logic:

              I do not own my home, although I have paid for it, because I must pay taxes to keep it.

              I am not free to work as I please in the US, although a citizen, because I must pay taxes or be jailed.

              I am not free to live, although alive, because I must eat, and food costs money.

              The taxes and expenses are (nearly always) nominal in comparison to the worth, in all cases. Surely you see the absurdity of this line of reasoning.

            • Sam S February 10, 2015, 5:56 pm

              Joe has a valid point. You never own the house outright. However, there are degrees of other entities involvement in your house. Lender puts a lien on the title and requires you to do certain things (pay taxes, insurance, and possibly bunch of other crap – just google how lenders screwed ppl over – things happen). Another entity is insurance which is required to have @ their own terms (i.e. minimum coverage, cost to rebuild, requirements, etc). And insurance companies can ask you for dumb stuff – I know I’ve had several issues w insurance. e.g. they required to build rails/steps leading into a canyon (my argument that there’s no access to canyon and I explicitly do not want folks to use my property as a their trail didn’t bulge them) Of course, it’s beneficial to carry insurance on free and clear house even if not required, but you get more leeway in policy terms (i.e. cost to rebuild differs greatly on my policy vs. open market – I can decrease this on paid off house to match market, or make it less if I want to take on more risk given sufficient cash reserves to rebuild). Anyways, the point is that while the house is never completely yours, it feels much better to cut down a number of folks telling me how to live:-) – Yet another reason why I never liked HOAs

            • Weiwei Gao March 25, 2015, 11:48 am

              We get it. I have read Rich Dad Poor Dad (I am sure most of readers here do), I know that house is a big liability. But this article is not about elucidating financial jargon or having an academic debate. That’s not the point.

              It it is ALL about spreadsheet and gain profit, early retirement / financial freedom /mortgage freedom makes no sense because in that sense no one should retire – everyone should work and accumulate money.

              There is a psychological reward of getting mortgage freedom. And the price of that reward is different from person to person. Skill/tricks/techniques are necessary to reach that goal.

              I appreciate this post in sharing the feeling that I can’t taste (because my mortgage is not paid off yet). But knowing how people feel after they beat that thing to dirt helps me to make judgement/decision.

              If one has to move out because he/she can’t pay tax or if the government has to impose heavy tax so (most) people can’t own a piece of roof even after the mortgage is paid off, something is not right. And it has nothing to do with whether real estate can be owned or not.

        • Stan January 22, 2015, 11:43 am

          So true, the only way to not really own your home is to live in your mom’s basement.

    • Mike January 22, 2015, 7:55 am

      I work in the financial services industry and somewhat cringe at what your suggesting. Yes you “could” earn more and perhaps the odds are in your favour. But remember the mustachian way seems to be about simplifying and reducing expenses. There will always be expenses property taxes, maintenance etc. but with no mortgage even modest income should be able to cover those expenditures. Remember as MMM would say enough is enough.

    • Ellen January 22, 2015, 11:35 am

      One only gets a tax deduction on the interest on the mortgage. When we ran the numbers it was more advantageous to save the 100K in interest on the mortgage, instead of getting a 1,000 a year tax deduction. Our financial advisors disagreed with us but, it has been a wonderful feeling not having a mortgage. My husband was able to take risks with his career that he would not have if we had been paying 2,000 a month on a mortgage. We invested the money that would have gone to the house payment in our retirement accounts. I don’t think we would have had the money to fully fund all three of them every year for 20 years if we had been paying a mortgage. However, everyone’s situation is different so I can only speak from my own experience. Property taxes are the reason that the public school in our area rates a 10 and our current home value at 1.4 million is somewhat a result of this.

  • Mike January 21, 2015, 11:50 am

    Extreme early retirement math seems to favor paying off the mortgage since ROI to retirement date is fairly insignificant given the short investment period (5 – 15 years) versus the permanent reduction in spending. Additionally, the reduction in spending makes the transition to part-time or self employment easier, which seems to be a significant part of many (most?) extremen early retirement plans.

    For traditional early retirement (55) or older, investing while keeping a low interest mortgage probably has more merits.

    • Linda January 24, 2015, 10:46 am

      Other factors can come into play, however, for those 55+ or for anyone retired. We are 65+. For the last few years, we debated whether to pay off the remaining $90,000 of our mortgage or keep that money working via other investments. Health issues limit our ability to earn extra money. Limited income translated into taking money out of savings more often than we wanted and depleting our cash savings at an alarming rate. If we were forced to go to our 401K’s, we would have had tax consequences for those actions, too, also including the fact that investments go up and down in value. If we had depleted all our regular savings, we might be forced to withdraw monies at a time when investments were down, locking in losses. Whether we “own” our house or not, we are now mortgage free, debt free, stress free, and living well on our fixed income while other investments can be left alone.

  • MUSTACHIO BASHIO January 21, 2015, 12:07 pm

    Mr Frugal Toque, thanks for sharing. This article seems to me to be mustachian at its heart (paying down debt) but the reasons you list border are mostly emotional rather than quantitative. I would love to see a breakdown of how much you are saving, counting tax breaks, etc, over the life of your mortgage by paying it off rather than using that same money and putting it into a Vanguard ETF (assuming normal returns over time and taxes paid upon each montly withdrawal), which is a type of analysis that I think MMM does a great job of doing. I think that math would really help people to see what is better, or if this is just an emotional decision (which you might trade-off anyways to live a stress free life without worry of losing a job or working again)

    • Mr. Money Mustache January 21, 2015, 2:02 pm

      I think we both acknowledged that this was an emotional choice. But so is retiring earlier. It’s a choice you can make, that seems to provide genuine happiness. If mortgage freedom provides more happiness than even a larger of money attained in another way, you could argue that it is a logical choice.

      Note that there are no tax breaks on mortgage interest in Canada.

      • Michelle G. January 21, 2015, 2:13 pm

        “If mortgage freedom provides more happiness than even a larger of money attained in another way, you could argue that it is a logical choice.”

        Just substitute the word “utility” for “happiness” and BAM, you’re an economist.

      • Powersuit Recall January 21, 2015, 2:40 pm

        | Note that there are no tax breaks on mortgage interest in Canada.

        Also, in Canada, mortgages tend to renew every 5 years. No 30 year 3.5% mortgages here. Paying it off earlier is a hedge against future interest rate hikes.

        I think if one can still contribute the maximum yearly amounts to RESP / RRSP / TFSAs accounts, the mortgage is certainly the best / safest long term bet.

        • Mr. Frugal Toque January 21, 2015, 6:51 pm

          “Paying it off earlier is a hedge against future interest rate hikes.”
          I almost wish I had put that in the article.
          I mean, how much do you trust the people who set mortgage rates to have your particular needs in mind? Who’s to say what economic theory will be in place the next time you need to refinance?

          • Charles January 22, 2015, 8:46 am

            Taking out a larger loan at a low fixed rate is the hedge against rising rates, not paying it off. Never fear though, I’m firmly in the camp of paying off early regardless of the math. The pure financials are easily quantified, the emotional stuff, the stuff of life, is comparatively poorly understood. I’ve talked to a number of older (70s) folks who have advised that the day they owed nothing to anyone was one of their best days in life. I trust that acquired wisdom and would be silly to think that I’m somehow different.

            • Jeff January 25, 2015, 5:38 pm

              Charles, did you miss the repeated statements that that isn’t an option in Canada?

      • Vik January 23, 2015, 10:48 am

        There is one Canadian mortgage tax break I know of – I use a portion of my house as a home office. I get to use the portion of interest I pay on the mortgage for that part of the house as a tax deduction. You have to have a business for that to work although it’s not that hard to set-up some type of self-employment arrangement if you have a desirable skill set in your local market.

  • Peter January 21, 2015, 12:09 pm

    Great post – I would like to see a post on the Frugal Toque monthly budget. I compare my Canadian budget to MMM yearly spending post and cannot get down to his numbers due to differences in insurance costs, taxes and other Canada/US differences.

    But you seem to be right there so I would be very interested in what this budget covers if you are comfortable sharing!

    • Rick January 21, 2015, 1:02 pm

      I too am a fellow Canadian who rocks a Toque, and cashes a paycheque. I am also working hard to get the same low budget as MMM and would love to see how other Canadian Mustachians do it. I would love to see how others do in the Greater Toronto Area for groceries as my family of 4 struggle to get under $700/mth.

      • Mr. Frugal Toque January 21, 2015, 1:24 pm

        That is interesting. Our budget is heavily inflated by a large chunk of “Fitness” Expenditure based on a very non-Mustachian martial arts program. That aside, speaking just for the food budget, we spend $568.93 per month, on average, for 2014.
        This is a heavily Costco-influenced amount, which keeps our milk, eggs and flour very cheap. Still, we eat plenty of seafood, frequent meat-based stir-fries, and a few Fancy Asian Meals. The thing is, a lot of the deal with “variety” comes from the spices you choose, not the expense of the meat (which is purchased in large packs from Costco and separated out at home). Lunch at work is *always* based on cooking extra dinner and heating it up the next day at work. It’s pretty much a scandal if lunch has to be purchased. We’re also very careful about keeping our fresh vegetable preferences wide open, so we can eat whatever happens to be on sale that week.
        I can’t be sure what, specifically, we do that other people don’t, but that’s our basic strategy.

        • MTH January 21, 2015, 11:53 pm

          Ah those damn martial arts expenses! Between the cost of the training and the transportation costs, I spend more on martial arts than I do to eat each month. Is it worth it? Probably. For me anyway.

          Just out of curiosity, what is your martial art?

          • Mr. Frugal Toque January 24, 2015, 12:24 pm

            We’re studying karate. Our dojo teaches a mix of Shotokan and Chito-Ryu styles.

  • Even Steven January 21, 2015, 12:20 pm

    Cheers to paying off your mortgage, run as many numbers as many would like but your results speak for themselves you have Zero Mortgage debt.

  • Vawt January 21, 2015, 12:38 pm

    I appreciate when people move beyond the math and into what provides the most satisfaction. The numbers don’t lie, but if everyone lived by just the spreadsheet it would be a sad world. That’s the best thing about early retirement, you have the freedom of choice in how to eliminate debts, allocate your capital, and how to spend and invest.

  • Kris January 21, 2015, 12:51 pm

    Mr. Toque,

    I look forward to hearing how you solve the no RRSP/TSFA/Mortage room dilemma… it’s an interesting change to invest in taxable investments with all the tax learnings that come with it.


  • RH January 21, 2015, 12:53 pm

    Another nice aspect of a paid of house is that you could end up taking a career change that you wouldn’t think of doing if you had a mortgage. Perhaps you’d love to work at a brewery…but never could due to the lower pay. With a paid off house, you could take that plunge with a lot less risk! Or maybe take a part time job so that you could spend more time with your kids. Or maybe with the less financial stress, you end up having more time to daydream and you think of a million dollar idea! No mortgage = freedom!

    Oh, and it’s OK to invest extra money in a taxable account AND pay down your principal mortgage balance. Think of your mortgage balance as your low risk bond fund

    • Brandon Curtis January 21, 2015, 4:17 pm

      Another way to have that freedom is to rent. If I decide to quit my incredibly lucrative job as a graduate student to start my own company, with one month’s notice and zero transaction costs I can move into the tiniest, darkest, dankest little cellar I can find to make my accumulated funds last as long as possible. And if my business idea requires some bootstrapping capital, with one click I can free up any fraction of my savings—cleaner than a HELOC and easier than selling a fractional house!

      • Eldred January 21, 2015, 10:11 pm

        It seems like renting over the long term would COST you. Comparing a $1000 rent to a $1000 house payment, at least with the house payment you’re building equity. Granted, it isn’t a straight 1-to-1 comparison because of taxes, utilities, etc. But renting for 10+ years leaves you with NOTHING at the end of that period. That’s like leasing a car – at the end of the lease all you have to show for it is less money…

        • Leo January 21, 2015, 11:20 pm

          Depends on the market. Housing in Canada is very expensive compared to the US, and compared to local rents. So in some markets it is significantly cheaper to rent comparable than to buy them even over the life of the mortgage.

      • SGHodges January 22, 2015, 11:55 am

        I’ve always found this as well – Plus from a yearly expenditure point of view, my home-owning friends* (with modest homes, neither very old nor very new) are paying more in Property Taxes and Maintenance than I am on rent.

        And my rent is inclusive of water and electricity, so the gap is even greater! In the end they own the home, but they’re out a lot more money every year. Three out of the four specific people I’m comparing costs to say that when they retire, they will sell the house and rent to reduce their expenses. I’m not sure how that really puts them in a better situation, financially.

        *In Canada, in a small city, and we compared numbers when I got fed up with everyone telling me I would be broke and desperate in my old age if I didn’t own a house. LOL Comparison in another location might yield different results.

    • Alyssa May 6, 2015, 8:41 pm

      This is an excellent point. And you don’t even need to have it fully paid off to take advantage of this.

      I made enough extra payments early on that the bank let me re amortize without any fees…my original amortization was 25 years, in 5 years I had paid it down to 10 years remaining, and I then re amortized to 20 years, lowering my monthly payment. Because of this, I was able to take a job that in the long run will be very beneficial both in terms of working conditions and pay, but is a pay cut for the next 2-3 years. It would have been a tough pay cut to take if I had not been able to reduce my monthly payment.

  • Jana January 21, 2015, 12:57 pm

    Paid the mortgage off in June! Still hasn’t quite sunk in. I neevvvver thought it would be possible :)

  • smbysw January 21, 2015, 1:26 pm

    I also have a burning desire to pay off my mortgage, but am a little perplexed about how best to do so technically: Is it better to make additional mortgage payments every month, or to save/invest until I have a big enough pot of money to pay off the entire thing?

    Since it will take me at least 3 years to save enough money to pay off the entire mortgage, is there a point at which it makes sense to pay off half of it and refinance even though the interest rate will be higher than my current one?

    • Mr. Frugal Toque January 21, 2015, 7:13 pm

      I can’t imagine a situation where it wouldn’t make sense to immediately put whatever spare cash you have lying around into your mortgage (if your plan is to pay it off fast, as was the plan for the Toques). Holding on to that money is just letting the bank charge you interest.
      As for refinancing: if you’re really that close to the end of your mortgage, and you’re planning accelerated payments, it’s very unlikely to be beneficial to refinance. Do you think you recoup the penalty in such a short time frame? I mean, do the math, obviously, but it’s not likely to be a benefit unless you have an atrocious interest rate.

      • Hayden Fry's Mustache January 21, 2015, 11:31 pm

        Mr Frugal – how about this –

        My mortgage – $121,000 with 28 years remaining. My interest rate is 3.5 percent. I’ve got a 50% tax credit for the interest up to $4k. I paid $4,064 in interest in 2014, so I’m able to receive a 2k tax credit. I figure my effective interest rate on my mortgage is 1.75 percent, which means I am money ahead any time inflation is above 1.75 percent. Can you make case for giving up a once-in-a-lifetime sweetheart deal from the government?

  • Tara January 21, 2015, 1:27 pm

    Congrats Mr. Frugal Toque! I am debt-free as well, for the past 2-3 years, it’s a great feeling. Living in Montreal I am happy to say that my yearly budget is $24,000, right in Mustachian territory. With a paid off home and no car, it is not hard for me to keep my expenses at MMM badass frugal level. (We are a family of 2 adults and 2 dogs. ) The distribution of my expenses is different from his, but the total is approximately the same.

  • Giuseppe January 21, 2015, 1:33 pm

    You, sir, have inspired me. I will pay off my mortgage in 3 years instead of the remaining 24! Working on a plan now to throw every extra dollar at Wells Fargo. I can’t wait to enjoy that feeling!

    • Slimremy August 21, 2018, 7:50 pm

      Curious were you able to do it?

  • Josh M January 21, 2015, 1:47 pm

    A point missed in the article: I believe it is more advantageous to pay off your mortgage quickly in Canada than in the States because you cannot lock in rates for 30 years up here like you can in the States. Maximum term is 5 years, so the low rates that I am paying on each of my two mortgages right now are only guaranteed until 2018 and 2019, respectively. Likely rates will still be low then (but that’s pretty tough to predict with any certainty), but who really knows 5 years after that. I’d rather not risk having to pay a high rate later on. I’m taking the safe route, the peace of mind, and the guaranteed return on investment and paying off the mortgages as fast as I possibly can.

    • Mr. Frugal Toque January 21, 2015, 2:06 pm

      I wasn’t aware that Americans could actually lock in their rates for so long.
      Although, to be fair, at least one bank allows Canadians to lock in 10-year rates:
      I suspect others do as well.

      • Chris January 21, 2015, 3:16 pm

        And I wasn’t aware the Canadians couldn’t lock in rates. We have a 30 year fixed rate mortgage at 3.375% so once you’ve locked it in, you kinda start hoping for some inflation to make that fixed payment feel smaller in 20 to 30 years time. A $1500 payment in 25 years will hopefully seem much lower than it does today.

      • Josh M January 22, 2015, 2:59 pm

        Sorry, you’re quite right. I should have said 10 years locked in (though very very few people have 10 year fixed mortgages- ratehub says only 7% of Canadian mortgages are locked in for more than 6 to 10 years, my credit union certainly doesn’t offer fixed terms beyond 5 years, which I think is very normal). My bad.

  • Ottawa Mark January 21, 2015, 2:04 pm

    Great article and job Mr. Frugal Tuque!

    As a fellow Canuck (and Ottawan) I’m very interested in hearing about your experience with Questrade. Why did you pick that one in particular? What do you think of the fee structure (I see that ETF trades are “free” but subject to “normal commission on sale” whatever the hell that means.

    I’ve not jumped into the world of self-directed investments yet so I’d love to hear more and how easy it was to allocate the investments to a TFSA, RRSP, and RESP. Any pitfalls to look out for?

    Thanks so much for helping this great blog be even more relevant to Canadians!

    • Jessica W January 21, 2015, 7:17 pm

      Yes! Mr. Frugal Toque, please write a whole next article about investing with quest trade for fellow canadians. As soon as you have the time of course. I’ve been doing research while I look forward to investing but it’s still not quite clear to me where is the best place to open a TFSA and RRSP. I have been interested in the quest trade option and like Ottawa Mark I would love to hear about your reasons for choosing it and your experience using it. Thanks again for all the great info MMM and Mr. Frugal Toque.

    • Chris January 21, 2015, 7:58 pm

      Fellow Questrade user here – the ETF is commission free on purchases (excluding a small ECN fee – Cdn Couch Potato had an article on that recently tl:dr, it’s too small to care about)

      However you get charged the normal trade commission when you sell an ETF – generally a penny a share, $4.99 min, $9.99 max

  • Chuck January 21, 2015, 2:04 pm

    We paid off our mortgage two months ago. I can say I don’t regret it a bit. We chose to pay down the mortgage because we figured we wouldn’t ever take out a 3.75% loan to invest in the stock market which is the equivalent to paying minimum on mortgage and investing excess in stock market.

  • Dinakar January 21, 2015, 2:07 pm

    I can fully appreciate this as we paid off our mortgage on December 01, 2013. With a 3.25% interest rate, the engineer in me kept fighting back though the goal of not owing anyone kept us going. A year later we have no regrets because of the massive change in our Cash flow.

    For folks starting out on this path – A mortgage will not pay itself off automatically even if you have extra cash, you have to make a diligent effort and always keep the goal in sight. Initially it may seem like the extra payments are not making a dent in your total balance but please hang in there. Every $ you pay extra reduces interest the following month so it compounds over time in your favor. It is only after a few months or year(s) after starting this process that you will start seeing appreciable change in balance every month. Personally this feedback was very important for me to keep going. Good Luck.

  • Michelle January 21, 2015, 2:08 pm

    Interesting article. My husband and I have a strong desire to pay off our mortgage as well, except our rate is pretty low 2.63 on a 15-year. Instead of paying off the mortgage, we’re working toward a goal we call our “financial tipping point”, which is when we have enough money in non-retirement savings (mostly brokerage account) plus Roth contributions to pay off the balance of the mortgage completely. It will feel like freedom because we can just pull the trigger any time and see a balance of zero. But we probably won’t because that money is better off sitting in an investment account.

  • Brandon Curtis January 21, 2015, 2:24 pm

    Firstly: congrats on being debt-free! From reading some of the other comments, the mortgage situation is different in Canada than it is in the US, and this seems to put a premium on paying them down quickly. I’ve helped several people dig themselves out of substantial amounts of student loan debt, and they all felt much improved when their paychecks were theirs again.
    The lifetime cost of buying versus renting varies by location and fluctuates over time. I don’t think buying is necessarily superior to renting at most times in most markets, and when it is I predict that the difference is typically small. (If you want to play landlord, obviously that’s a different game.)

    A cheaper rent or smaller mortgage is guaranteed to have a BIG impact on your lifetime cost of housing, so your efforts are best spent downsizing and avoiding the nesting impulse to pay for more space than you need “because you might want it later”. This is clearly an issue, because American home area per person has tripled over the last hundred years: http://www.andhigherstill.com/2014/05/real-estate-buying-vs-renting.html

    Even smart people often say “3% mortgage! free money!” and think that’s the end of it, but they’re neglecting the dangerous lack of diversification and historically low home appreciation rates, the cost of maintenance, taxes, insurance, and transaction costs, and the substantial reduction in geographical and lifestyle freedom that purchasing real estate involves. Granted, there are steps you can take to reduce the impact of these categories (e.g. do your own maintenance, get a real estate license and carry out the transactions yourself, etc) and those who are ‘established’ in a location or have children might value the perceived security and stability of ownership over the freedom of month-to-month renting. (And take heart: the human tendency toward self-serving cognitive bias means that you are likely to cite your own brilliance if you buy a house and the value goes up substantially, but blame it on the vagaries of the market if the price holds steady or drops.)

    I agree that buying a home is sometimes a winning proposition, but I think it’s unfortunate that people early in their careers feel pressure to buy due to unexamined “safe as houses” truisms. (Large companies encourage—and even subsidize—homebuying for obviously self-interested reasons: if you want to improve retention in a world where there is a strong financial incentive to switching jobs every two or three years, “get ’em a house and get ’em a spouse!”.)

    I love the simplicity and freedom of renting, and I hope to continue renting for the foreseeable future.

    • 9 O'Clock Shadow January 21, 2015, 4:10 pm

      Great site and clear graphs Brandon (its OK folks, he blog rolled MMM).

      Doing the math, we’ve come out ahead of market investing even considering the in markets in 2009 when we bought; but that was pure luck given the timing of the purchase and the area. Your larger point should be taken seriously: Purchasing a home should be part of a larger plan and not just an overrated mattress to stuff cash into. If your investments are 1) yielding enough to cover rent and 2) you live comfortably, than renting affords the same mental and emotional satisfaction as owning.

      Our larger plan includes rebuilding or buying a multi-unit building which our very young son can manage at some point, and we can live in (or live off of) comfortably. It’s a 25 year plan with lots of unknowns, but definitely better than paying off a mortgage with no plan for the asset afterwards.

  • 9 O'Clock Shadow January 21, 2015, 2:40 pm

    FOQUE-N-EH! Foque, that is indeed inspiring. We’ve chipped away the 20 year mortgage @ 2.79% to 11 Years, and even refinanced in October to 2.59%. We’ll be done a lot sooner than 2026 though. Yes; those are ridiculous rates. The Bank of Canada (like the Federal Reserve in the USA) also announced they’d be LOWERING rates further due to falling oil prices. OK they didn’t say it was because of that – but we know better. Strangling Putin is costly.

    I’ve read somewhere on this site that paying your mortgage off is like earning the interest rate on an investment. So if you are netting 3.5% every time you pay it down, the difference between that and doing historically well In the market (7% at optimistic @ realistic rates) is 3.5%…..Except You Still Have a Foque-ing Mortgage To Pay!

    I’d say the tipping point in favour* of investing in the market vs. mortgage pay down would be a solid 10% return enabling you to earn money on your cash, service your debt, and keep up with the Jones-stachians 7% returns.

    *damn right there’s a ‘u’ in favour. See previous definition of ‘Paycheque’

  • Steve January 21, 2015, 3:00 pm

    In January 2013, my wife and I set a goal of 6 years to pay off our 15 year mortgage that had 11 years left. After the first two months of throwing every available dollar at it, we revised our goal to four years, so that our house would be paid off by the end of our twins’ first year in college.
    In January 2014, we decided to really be crazy. We would not enter 2015 with a mortgage, no matter what it took. On December 24, 2014, I took a certified check to the post office and paid off the last $17,888 of the loan. I hate mortgage companies! I’d rather live in a tent in Siberia than ever have a mortgage again.
    We are both 47 with no mortgage or debt of any kind, the feeling is impossible to explain – only having to fund the basics and the things we want. I used to be just ok with fixing things and yard work around the house. The things I’ve done around the house lately have felt different because the house is OURS, not the bank’s. If you can, pay it off early. If you don’t think you can, do it anyways. My only regret is not beginning the early payoff process four or five years earlier.

  • Julia January 21, 2015, 3:16 pm

    Favorite topic of mine! Congrats on killing your mortgage!

    My husband and I paid off our mortgage in 2006 when we sold our house in the city and paid cash for a house in a cheaper small town. We lived there mortgage-free for seven years while our children were small, and neither of us worked more than 20 hours a week at day jobs during that entire time. It was bliss, owing nothing and being home with our babies.

    Then we got this wild and crazy idea to move to Colorado. We were right in the middle of major renovations on our huge old house, and our town had still not recovered from the housing crash. But we wanted badly to be in Colorado. My husband found a full-time job in Colorado, and we sold our house for less than half what we had paid for it only seven years before, and rented for a year in our new Colorado town, where houses (and rent!) were pricier.

    This past May we bought a house (1100 sq ft, one-third the size of the big old one we sold, which suits my minimalist taste perfectly and saves us plenty on utilities), for quite a bit more than houses of a comparable size were going for in our old town in Minnesota.

    And STILL, we are on track to pay off this new mortgage in four years. (I should also note that we are living on one income, and make only a little over $50,000 per year – and have never made more than $70,000 annual household income.)

    We may never fully retire before age 55 or 60, but in four years, when our mortgage is paid off, we will once again be free of the need for even one full-time day job, because like you, our annual spending is low, and our quality of life is awesome :)

  • bryan danger January 21, 2015, 3:16 pm

    What i love the most about this story is the uneasiness surrounding he and his family after paying off the mortgage. The one that kinda feels like you’re cheating and somebody’s gonna catch you… you slowly get used to it. It’s actually just your brain adapting to being stress free! =)

    We are settling into that same weird feeling now, although we did it a slightly different way.
    Instead of piling all our money into killing the mortgage we moved out and are letting someone else pay it off. The only thing that could possibly feel better than paying off your mortgage has to be knowing that you reaped all the tax benefits while someone else wrote the checks! Better yet, As inflation rises our interest and mortgage payment will remain the same while the rent check increases.

    We now live job free, travel as much as we want and live in a small but beautiful home (below) in what used to be our garage…and couldn’t be happier.

  • Mike January 21, 2015, 3:19 pm

    Congrats on paying off your mortgage!
    This discussion of whether to pay off your Canadian mortgage is a good Mustachian move or not is likely relevant to those who purchased property some time, maybe a decade ago.
    The most Mustachian way today in Canada however is on my opinion NOT to get a mortgage at all at this time.
    House prices in most parts are outrageous and in some like Vancouver where we live are, well … help me out here, I can’t come up with words to describe it ! :)
    I owned a small one bedroom purchased in 2001 on the cheap that I paid off within a couple of years. Yes, great feeling for sure. Then it came time to sell and reap the profits in 2010 when our first son got to the age where we could not share a bedroom with him anymore. It was nice to get the selling price that at the time I thought was already insanely high, I would have not paid it for sure. A few month were then spent crunching numbers on spreadsheet, no property came even close to being a good investment financially at that time even, and as we know it got a LOT worse since then. Poloz cutting rates today might even encourage further borrowing, Canadians have simply lost their minds on my opinion.
    Having a paid off home again was high on my list at one point, not anymore, unless the property market crashes by at least 50% in Vancouver as it should. Until then, I’ll take the cheap rent I get in my Co-op building that gives us the lifestyle and community feeling that we all love, lots of friends and good neighbors and will keep on piling most of our paycheck into savings.
    I believe that the ONLY real benefit to buying a home today would be limited to people who need to be forced this way to save and would otherwise piss off all their earnings, not for Mustachians!

  • Norm January 21, 2015, 3:53 pm

    Congratulations! I look forward to that day which we have planned for by the end of 2017. Which, I just calculated today, is just 1,075 days from now. I know, numbers-wise, it doesn’t make the most sense to pay off a 4% loan years early, but I don’t care. Just thinking about the change in cash flow you describe makes me smile! Mortgage debt is still debt, despite what some of the most astute financial minds seem to think.

  • Stuart S January 21, 2015, 4:30 pm

    This is one of the rare areas where MMM et al depart from the advice found in William Bernstein’s books. In “Investors Manifesto” he states that home ownership is not an investment, it is a consumption item. Considering taxes, insurance and maintenance you are often better off renting. A paid-off house pays you an “imputed rental dividend” or the amount you are not paying for rent of that house. So a $300k house that might rent for $1,250 a month pays a 5% annual imputed rental dividend ($1,250*12=$15k/$300k=5%). Take 2%-3% in expenses away from that dividend and you are left with relatively meager returns, while your $300k might earn better returns invested in a portfolio of stocks and bonds. Thoughts?

    • Dylan Smith February 24, 2015, 7:34 am

      You need somewhere to live. If you own you can pay your mortgage off, and eventually it means you lose (in this example) the outgoings of $1250/mo. If you rent in this example you’re stuck with that outgoing till the day you die.

      By renting you don’t get rid of the opportunity cost of that money going out. The opportunity cost to the renter and the owner is the same. But the owner will eventually have that opportunity cost go away altogether, whereas the renter is stuck with it.

      (Where I live, it’s also the resident who pays the rates (equivalent of property tax) so property taxes here are not rolled into peoples rent).

  • Rocky_MtnMom January 21, 2015, 4:34 pm

    My husband and I paid off our “starter” house about 10 years ago, when we were in our late 20s. Since then, we paid cash for a rental/vacation house and then “upgraded” our house and paid cash for that as well. Owning our houses and being totally debt free brings us such peace. We are both professionals and we have two young children. Knowing that either (or both) of us could get laid off and our family would be just fine, is a huge relief. Not having a mortgage may not always look like the best decision on paper, but for us the emotional benefit is well worth it and frankly, we have yet to feel any negative financial repercussions from not using mortgages. (We started investing about 70% of our monthly income as soon as we were done buying property, so we quickly made up for the years where our investments were leaner.) For now, we both still enjoy our jobs so we continue to work. But, who knows, perhaps our 40s will bring early retirement :)

  • JeffinOz January 21, 2015, 5:00 pm

    In Oz we can usually only fix interest for 5 years max. My mortgage is “variable”, and it has a 100% offset account attached.
    This means I pay the minimum repayments on the mortgage, and any extra I stash in the offset. If the mortgage balance is 400K, and I have 150K in my offset, I’m effectively only charged interest on the 250K net balance.

    This is an important tool in the Australian mortgage market as the interest on our principal residence is not tax deductible. And effectively the “interest saved” by the offset is not taxed.

    If I decide in future to rent out my property (in which case interest and other costs will be tax-deductible), I can withdraw the money from the offset and use for anything – purchase another property, shares, savings etc.

    For a disciplined person the offset is a great tool. All my salary is paid into it, and I pay my expenses out of it. As long as expenses are less than income, I’m winning.

    So far investing in real estate in Sydney has been a great medium term bet – in just under 4 years my inner city townhouse has appreciated nearly 50%. But the feeling of security and living in a great location (where, paradoxically, there are many great free activities and living can be low cost as I don’t have to drive everywhere) have driven me to concentrate on mortgage over shares.

    • Linley January 24, 2015, 10:52 pm

      A good overview of how things work in Oz.

      I would add that if you decide to rent out your own property it will then be subject to capital gains tax when it is sold.

      I think the offset accounts are a great innovation, but wonder if the banks are able to change the rules in an emergency situation and lock in everyone’s capital.

      I did read my mortgage document (many years ago), and the bank could foreclose at its own discretion (not that they do) so I was keen to cut them loose asap. DH and I were able to retire early, not extremely early but we have sufficient in a frugal-MMM-sort-of-way and have not looked back. Many of our peers are stuck with a big mortgage and so cannot retire and another couple who never bought a house or saved cannot afford to rent in retirement and are having to live with relatives. As you say, it all depends on the discipline of the individual.

      We had a real estate agent give us the figures on our house and we’ve come to the conclusion that we could not afford to rent our own house. The rents in Oz seem to be higher than the US, plus leases are shorter so the rents increase more often; there doesn’t seem to be the long term continuity available and therefore security of tenancy.

  • Mimsta January 21, 2015, 5:07 pm

    Well written and inspiring article.
    I got divorced just before the crash with two little children. I struggled and worked hard to keep up payments on my house ( yes, I purchased it before I met my husband and I kept it that way, being responsible for mortgage). I paid it off 15 years after purchase, it would have been 10 but the divorce delayed that ( BTW no payout received on divorce). It’s a relief, but quickly forgotten, life still throws up crises, at least it’s one less thing and if I lose my job, we can readjust more easily.

  • marvin mcdude January 21, 2015, 5:31 pm

    I recently moved from aggressive pay down mode to changing my mind and refinancing back into a 30 yr for aggressive equity investment mode. Was I right? Was I wrong? Just from reading the comments here, I see a lot of pretty smart folks disagree as to the optimal course… so I figure, as long as I’m pursing one of these routes, it can’t screw up too bad.

    • Leo January 21, 2015, 11:29 pm

      I don’t think you’ll find much disagreement that you will be further ahead by not paying off the mortgage. If markets don’t deviate much from historical norms in terms of long term return you will earn wealth faster by investing. Just depends on how much the satisfaction of no mortgage is worth to you.

    • Married to a Swabian August 22, 2018, 5:07 am

      We are fortunate (and frugal) enough to be able to do both now. The key for us was to move to a smaller house – 1200 SF – with lower taxes ($2500/yr). There is also something very calming about having the first of the month roll around and no mortgage payment due! Of course the S and P 500 has averaged much higher gains historically than the typical mortgage rate, but that may not apply to the current situation. At ten years, this bull market is looking tired. The P/E ratio of the S&P is around 23, so pretty pricey! Real estate doesn’t always just go up in value…just some lessons learned at 53 from someone using MMM’s wisdom to get caught up saving for retirement.


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