Back in 2005, when I was just 28, I took a massive leap and bought a house in San Francisco for $1,523,000, with a mortgage of $1,220,000. It was a huge amount of debt for someone my age, and when the financial crisis hit in 2008, I was terrified. My company was laying people off left and right, and I knew plenty of folks who’d lost their jobs.
Luckily, I kept mine. I tried to sell the house in 2012 for $1,700,000 but had no luck. However, in 2017, I managed to sell it for $2,745,000 to the only interested buyer. Walking away with a profit felt fantastic, as did shedding $815,000 of mortgage debt.
When I bought my next, more affordable house, I considered taking out another mortgage to take advantage of low rates. But the memory of how good it felt to be free of my previous mortgage held me back. Instead, I sold some stocks after a decade-long bull market and used the cash to make an all-cash offer, which helped me secure a better deal.
I’m a firm believer in the benefits of being mortgage-free. The debate between paying off debt and investing will always be there, as everyone’s financial situation and risk tolerance are different. I recommend a balanced approach, especially if you’re in the early or middle stages of your financial journey.
However, if you’re nearing the end of your wealth accumulation phase, I’d suggest focusing more on paying down as much debt as possible. Ideally, you should be mortgage-free by the time you’re ready to stop earning money.
Mortgages are a necessity for most people, as not everyone has enough cash to buy a home outright. They can also help boost real estate investment returns. But remember, leverage can be a double-edged sword. During the 2008-2009 financial crisis, I lost about 90% of my home equity on paper.
The fear of losing everything was something I never wanted to experience again. So, I made a promise to refinance my mortgage whenever rates dropped and I could break even within a year. I also committed to paying down extra principal whenever I had spare cash.
Even though money is cheap right now, not having to make monthly mortgage payments is a great feeling. I don’t have to worry about interest payments or dealing with a bank that might sell off my mortgage, forcing me to change my autopay setup. I handle all my banking transactions on my mobile phone now.
Being mortgage-free has made my wife and I feel more secure during the global pandemic. We worry less about our retirement income being cut since our living costs are low. It’s also comforting to know that no bank has a lien against our property.
If you want to achieve financial independence faster, try to keep your housing expenses at 10% or less of your gross income. This way, you can weather financial storms without too much worry.
I’ve often wished for a larger, fancier home, especially during lockdown. But it’s hard to give up a frugal lifestyle that offers more flexibility. Since becoming a parent in 2017, I’ve been focusing on reducing financial stress. This has become even more important now that I have two kids.
Until 2020, I’d never owned a home without a mortgage. During the 2008-2009 crisis, I was too worried about losing my job and investments to buy stocks when they were down 50%. But this time around, being mortgage-free gave me the confidence to take on more risk. I invested about $500,000 in the S&P 500 when it dropped below 2,500.
If I’d had a $1,400,000 mortgage on my current home, I doubt I would’ve had the courage to buy stocks when they were down. I might not even have been able to write a rational article about analyzing a stock market bottom. I would’ve been too stressed out.
Moreover, if I’d had a mortgage, I wouldn’t have been able to sell about $1,000,000 in stocks in 2019 to pay for my house in cash. Having a mortgage and declining stocks would’ve made it too risky for me to invest more in the stock market.
I’ve since sold all the stock I bought when the S&P 500 was below 2,500, between 2,800 and 3,000. The proceeds will go towards a remodel and gifts for my kids. It’s my way of trying to make the best of a tough situation.
Being debt-free can give you the courage to do things that might otherwise scare you, like quitting your job, starting a business, or ending a relationship. But be careful, as being mortgage-free can also reduce your motivation to work hard.
I recommend paying off your mortgage before you retire. The peace of mind is worth more than any extra returns you might make by investing elsewhere.
If you’re thinking about buying property during a pandemic, now could be a good time. Mortgage rates are at record lows, and there are some good deals out there.
If you’re looking to refinance your mortgage, check the latest rates online. You can get free quotes from qualified lenders in one place.
Real estate is my favorite way to achieve financial freedom. It’s a tangible asset that’s less volatile than stocks, provides utility, and generates income. Rising rents and property prices can build significant wealth over the long term.
There are more ways to invest in areas of the country where valuations are lower and net rental yields are higher, thanks to crowdfunding. I’ve personally invested $810,000 in real estate crowdfunding across 18 projects. My real estate investments account for about 50% of my current passive income of around $300,000.
Where do you stand on the pay down mortgage versus invest debate? If you’ve paid off your mortgage, do you regret it? Does having a paid-off mortgage feel better or worse during a bear market? Given the low interest rates, have you been tempted to take on more debt through a HELOC or cash-out refinance?
