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Suzie and I are visiting family and enjoying the Victorian grandeur of the coastal towns of southern England, in particular near Brighton where my brother-in-law recently purchased his first home. He’s been expressing nervousness about the new experience of having a mortgage. While chatting during the evening I’ve tried to soothe his mind with a version of this, I admit, slightly left-field argument. It seemed to help him and I thought I’d share my thoughts.
When my wife Suzie retired in June last year, she was adamant that we pay off our mortgage immediately. I was not in agreement with this idea, as our rate was only 1.35% and there would definitely be a large opportunity cost in doing so. But, as we know, a wife can be very persuasive, and the mortgage was duly repaid, luckily with no early redemption fees.
The oddest thing happened afterwards. I found myself surprised to feel a great sense of relief being mortgage-free, even though carrying the extremely low-rate debt hadn’t bothered me at the time. My friends were quite envious of my good fortune, and I admit, I took great satisfaction in reminding them about it, continually. I can only assume this speaks volumes about the psychology of money. It seems making a poor investment choice brought peace of mind.
But I didn’t tell my brother-in-law this during our chat, I wove another reality that paradoxically is just as true…We generally see a mortgage as a monthly burden, a necessary evil. It’s essentially a financial instrument that allows us to bring future income into the present so we can enjoy homeownership right now.
However, it’s worth balancing this common perspective by looking at the positives of a mortgage. For one, your mortgage can be seen as an enforced savings vehicle. Unlike voluntary savings, mortgage payments are a non-negotiable expense. This makes us allocate a portion of our income towards building an asset.
A large part of your mortgage payment goes towards paying down the principal. Over time, as this principal balance decreases, you build equity in your property. This equity is, in essence, accumulated wealth that can be accessed later through a home equity loan or the sale of the property. Myself for instance used the equity as a springboard to initially finance my business. We might even be lucky enough to see the value of our home increase over the term of our mortgage, turning it into a savings account that also exhibits some of the characteristics of an equity return.
Our mortgage allows us to enjoy the benefits of homeownership at an earlier stage than if we had to save the full amount. Can you imagine the difficulty of also paying rent while trying to save for a home? For many, this would be an incredibly hard ask. While we are undoubtedly taking on a large and scaringly daunting debt, keeping our future selves chained to the grindstone, the current and future benefits of homeownership—both personal and financial—make it a truly valuable product deserving of our praise.
So, the next time your mortgage payment comes due, consider yourself a bit of a financial whiz-kid for pulling off such a strategic investment in your future, and a genuine reason to be proud of your savvy financial ability.
Although, for the sake of my counter-narrative on mortgages, I’ve highlighted the positives, it would be wrong of me not to highlight the risks, like interest rate risk. At one point, in the early 90’s, I was paying north of 13%. The possibility of foreclosure, due to unforeseen illness or unemployment, is another area to consider. But I believe the many positives far outweigh the risks and my brother-in-law along with many others will be best served by this often disliked financial product.
When I think about it, this little thought experiment with mortgages reveals how easily financial products can be reframed and given a positive spin. It’s a useful perspective to keep in mind the next time a brochure from an asset management firm lands in your mailbox, trumpeting the latest financial ‘must-have’. On this occasion the reframing was to help my brother-in-law but the technique could have a darker use.
The median U.S. home price-to-income ratio has risen from 3.5 in 1985 to 5.0 in 2025. On the other hand, the interest rate for a 30-year fixed home mortgage has fallen from 12.4% to 6.8%.
I suspect that one of the issues facing first time home buyers is their level of indebtedness. When I purchased my first home in 1978 I had no other debt, although my spouse did have a small college loan (which I paid off). I owned the automobile outright as I had bought it with cash. Credit cards were used as an alternative to carrying cash, not as high interest loans for vacations, funding “experiences”, to buy groceries, “toys” or whatever.
I was in a similar position myself. In fact, I didn’t even have a credit card at the time. I wonder how the mortgage company managed to run a credit report on me then; I had absolutely no credit footprint.
As I recall, in 1978 I had to provide pay stubs and employment history data to the bank to prove my credit worthiness. They verified my information with the “personnel department” of that company. The credit card (American Express) was stipulated to be paid off each month; there was no credit balance, per se. I was also required to make a minimum 20% down payment to get the loan.
These things influenced our lifestyle choices. Everything from dining out to any vacations (which were local and frugal). We were saving for that down payment and living on cash flow with no credit balance. The current system rewards banks, credit card companies and other lenders, to the detriment of the borrower. BTW I do not fault these lenders. They are providing an optional service.
Thanks Mark for your insight about mortgages, pluses and minuses. I chose long ago to pay it off sooner, rather than later, and as such when we retired, we had NO mortgage, just the way we envisioned it. Never like paying those interest rates, and yes, in the 1970’s, the rate were like 12% and more. Our final rate in the 1978 was 9.75% and 8% in 1995, my kids had rate in the 4% range in the 2020’s. The whole idea to me is, know all the pluses and minuses then make your decision.
Why would you pay off a mortgage with a 1.35% interest rate??? Your money would be better off in the stock market earning @10% or a Treasury note. I have a mortgage at 3% but I add extra money each month.
Well Mike, when I finally retired, I got away from the ‘get ahead’ mentality of my working years. I’m doing very well with my retirement incomes and don’t need the concern of accruing more. So, part of my previous ‘get ahead’ strategy was secure my housing ASAP and save the principal-Interest payments. I consider that my ROI from paying off the loans early.
I do have a mortgage on a home recently bought for my trust and when it’s paid for, the exodus of P-I and amount I’ve allotted for the extra payment will provide just over $2,200 per month in extra spending power. Rather than on the mortgage, I could put the extra principal payment in some investment, and assume risk and possible loss.
But, why?
We all have different situations in life, and different points of view and that’s the beauty of this great site!
Mike, as an individual, I wouldn’t have paid off the mortgage. But as a partner in a marriage of equals, an accommodation has to be reached. My wife’s feelings about having no debt were much stronger than my need for extra cash flow. A harmonious marriage is far more important than extra money you don’t need.