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Since May 2024 I’ve “spent” approximately $8,000 on a strange concept called “peace of mind”. I think it’s been an absolutely excellent 20 month trade and well worth the cost, but a lot of people would take issue with my thoughts.
My wife Suzie retired at the end of May 2024 and insisted we pay off our small mortgage balance of $70,000 before she pulled the trigger. I wasn’t fully onboard with the idea, preferring to keep the money compounding in our portfolios. The math was straightforward enough. Our mortgage rate was low, our investments were performing well, and the opportunity cost of pulling that money out seemed unnecessary. I ran the numbers confirming what I already knew: keeping the mortgage made financial sense.
But marriage is a compromise and Suzie’s need for zero debt was stronger than my desire to keep the mortgage. She’d spent her entire banking career working with various forms of debt management, and the idea of entering that phase with any debt hanging over us genuinely bothered her. So we paid it off. And here’s where it gets interesting.
It’s a strange phenomenon, although the debt was relatively small and easily manageable I really enjoyed the new situation of being totally debt free, and that’s despite the fact we could have paid it off at any time with cash. The physiological effect is something that can’t really be measured on a spreadsheet or by rational thoughts.
Consider my position of being at ease with the debt but still feeling great when it was discharged. I hadn’t expected that. I’d agreed to pay it off to make Suzie happy, figuring I’d spend the next few years quietly mourning the lost compound growth. Instead, I found myself experiencing the same sense of relief she did.
There’s something about waking up and knowing you own everything outright. No monthly payment, however small. No balance sitting there in some bank’s ledger. The mental space it frees up is real, even if I can’t quantify it. I wasn’t ever lying awake at night worrying about the mortgage before. But apparently some small part of my brain was tracking it, processing it, keeping tabs on it. And now that part is quiet.
The $8,000 represents the opportunity cost, the difference between what our money could have earned invested versus what we saved in interest payments. On paper, it’s a loss. In reality, it’s the price we paid for something that turns out to be genuinely valuable: complete financial freedom and the psychological ease that comes with it.
Would I recommend this approach to everyone? Probably not, there’s too many variables: age, liquidity needs, portfolio size, life stage. But I’d also stop short of calling it a mistake for everyone. Sometimes the best financial decision isn’t the one a spreadsheet insists upon but the one that stops your partner nagging you to death.
I used a simple thought experiment: If we had kept the money in the market and gained that $8,000, what would we have used it for? Likely, to buy something that made us happy. We simply skipped the middle step and used the money to buy happiness (via peace of mind) directly.
The opportunity cost clock stops ticking at the end of this month when the original mortgage would have been paid off anyway. At least from that date I won’t have to make any sneaky calculations to see how much earlier payment has cost…I can’t help checking, I’m a bit of a nerd 🤓
Insightful, well written, Mark
In my book you did two very important things by sacrificing $8K in returns:
That old adage, “a happy wife, a happy life,” was certainly a major consideration during the great mortgage pay-down debate!
You found “Financial Peace” as Dave Ramsey calls it. It’s more about peace-of-mind and emotional well-being than it is about finance. Best feeling in the world to live in a mortgage free home.
Everyone has a different comfort level, and to each his own. However, thinking that you own your home after you pay your mortgage is incorrect, especially here in Texas. My property taxes are higher than my principal and interest payments to the mortgage company. If you fail to pay your taxes promptly, the state can foreclose and sell the house fairly quickly. Starting a month after taxes are due, interest rates quickly become exorbitant. So we won’t pay the mortgage off early, just wouldn’t get that warm, cozy feeling.
C, I was always told that Texas didn’t need a state income tax because of oil revenue. That is apparently not true, as they seem to make it up on your property tax. I understand your frustration.
Not having a mortgage means you bought mental quietude. In a world where that’s hard to come by, that’s money well-spent. Go think about something else, to your point.
You “lost” $8k in hindsight. Could have easily had a 10 year market downturn and you could have come out ahead with the early payoff. Yes, statistically, you made the wrong decision. But the not paying off option included a degree of risk. Due to the unusually long bull market, the risk of the market is a distant memory. Many blogs would have a whole different outlook if we were coming off a long downturn or even a normal market.
That is a very grounded perspective. Essentially, the future is unknowable, but paying down a mortgage—or any other debt—is a known quantity with a definite outcome.
You don’t really own a house until the mortgage is paid off.
Paying off my modest 15 year mortgage on a fixer upper house was one of the best things I ever did when I was younger. You have to take into account the total cost of loan debt service. On a 15 year loan you pay back roughly twice the amount of the loan, for a 30, its about three times. The earlier the mortgage is paid off the earlier the money that would have went for interest can be invested and take advantage of long term compounding.
As you found out its a great relief not having a mortgage hanging over your head. Going into retirement debt free gives you a clean start on the next phase of life.
I take emotion out of it completely! I always run the numbers and whatever makes more monetary sense wins out!
I don’t think the numbers can see everything. They’re certainly blind to the ROI on happiness and peace of mind.
Completely agree. As someone who was trained in an Ivy-League MBA program, you learn that a spreadsheet doesn’t calculate everything. It can only calculate numbers, and life isn’t run by numbers alone.
I understand this concept and strongly agree there’s an element of behavioral economics that we still don’t fully appreciate. Tangentially related to a new post by Adam, where he references something that Jon (RIP) had written about previously, the benefit of enjoying a ‘run up’ to delayed gratification (example given was planning a vacation well in advance to enjoy the anticipation). Back to the mortgage. Like many people, my mortgage payment was an automated thing, the amount was paid out each month and thus after a time I never really thought about it. It wasn’t until one day I received a nondescript one page letter from my bank, saying that the mortgage was paid in full and thanking me for my patronage. Funnier still was that the letter itself was printed on what must have been the last gasps of the toner cartridge, as if the bank knowingly knew their income stream had ended, and wanted to not spend even new ink on an old loan!
You obviously made a wonderful decision. Actually, I did the same thing about 20 years ago, and felt nothing but grand. I have to say, I just do not like any debt. The freedom we felt was wonderful. Nice work.
You made the right move Mark. Keeping your wife happy. That’s peace of mind at any cost. I love was Dave Ramsey says about a paid off mortgage; “Even the grass feels different when you don’t owe on it anymore.” If you really miss having a mortgage you can always go out and get another one.
I do question some of the things David Ramsey says, but I certainly agree with that sentiment. I think I’ll pass on getting another mortgage lol
did you think about getting a $70k life insurance policy to make spouse feel safe thus keeping your cash invested?
We already had a decreasing term life policy attached to the mortgage.
I paid off our last mortgage with a rate of 2.875%. The peace of mind is fantastic.
But where do you consistently find that 11% return? I beleive much of that peace of mind comes from not needing to find that 11% return to make the house payment.
What’s hilarious is that I paid off our mortgage a while ago (2016 I think), but now I am looking at doing build, borrow, die with an SBLOC where we carry debt indefinitely until one of us dies. It’s super hard to wrap my head around it – a loan where you pay the interest and just let the principal run forever.
Sal. I’m sure you’ve had an advisor run through the risks with you. But just in case, have you considered a market drop and getting hit with a margin call? Are you keeping some liquidity in safe assets for the possibility?
I am also with Suzie. I started by paying extra on my mortgage each month, because I wanted to see more principal being paid than interest every month. Over time, the shift was big, and I liked the feeling that I was owing less and owning more. Then I got a bonus and just paid the rest off. I love not having that expense every month. I don’t care if the math doesn’t always work, or put me at a slight disadvantage over time. I know a lot is based on your mortgage rate and what you might earn elsewhere. I have a pretty clean and clear view of my financial position. And having the extra money hasn’t really made me less frugal. Now my biggest expense is, you guessed it, taxes. Too bad I can’t negotiate a one-time lifetime settlement of that. I want to buy something like a “Forever” stamp for all my taxes.
Sometimes a decision is more than just about $ or Opportunity Cost.
Each individual should make financial decisions that are “the best” for them.
“Peace of Mind” is priceless.
In the late 1970s my grandparents could have paid off their mortgage. By then it was mostly principal. They loved to boast to anyone who would listen the incredible deal they were getting by keeping the mortgage.
In a fit of boredom during the doldrums of the pandemic, in January, 2021 I decided to pay off my mortgage. I ran the numbers over and over and decided to go for it after concluding some decision like this are not purely rational. I had paid 9 years on a 20 year mortgage at 3.875%, so not a bad rate, however, with cash paying nothing at the time I decided to just pay it off. My wife was all for the decision and we’ve never looked back. I like the extra cash flow every month and the peace of mind of being totally debt free.
i don’t have a mortgage. we timed that to retirement and it gives me a good night’s sleep which is my investment/retirement strategy.
but if i was cash ‘shaky’ i would definitely keep a mortgage, especially one that has less costs, low interest rate, than prevailing mortgages.
that ability to get at liquid stuff is also part of a good night’s sleep. the emergencies, exigences of life are unknown unknowns. to be able to, possibly, handle the unknown stuff…. this is for me the counter argument to always dumping debt as in a mortgage. does that act reduce in a real way your flexibility?
being ok and being not ok is a sliding scale, more emotional than exact, you have to find your own comfortable place…
We considered the alternatives of taking out a mortgage and investing freed-up cash, or paying for the property using cash. I’m aware of the pros and cons.
When I was starting out in 1978 I did purchase a starter home and took on a mortgage. Over the next 10+ years I improved it. With the children in college I then moved into apartments for a period of time.
I used the NY Times “rent vs buy” calculator, but they now want a subscription. Calculator.net offers one today, for free:
https://www.calculator.net/rent-vs-buy-calculator.html
After the children were grown and had completed college, things changed.
Eventually, we purchased a condo in January 2002 for cash (I used the calculator). We’re not averse to strategic debt, but in 2002 we were recovering from the Dot-Com hangover and the market was in what became a multi-year “lost” period. At the time I thought taking on debt to buy the condo while appropriating the cash to the stock market wasn’t in our best interest.
Later we purchased a Class B RV for cash, and most recently a “home” in 2023.
I don’t purchase unless I intend to keep at least 10 years.
Purchasing an RV, or any expensive vehicle usually involves significant depreciation. The RV was 6 figures, but was a “toy”. I didn’t want to go into debt to purchase it. That was 2013.
After selling the condo in 2022 we took part of the proceeds to purchase the house, investing the remainder.
We are tax conscientious. The condo was a “manor style” home. The Real Estate taxes were about 20% that of a comparable home in the area and adding HOA fees we were still $thousands ahead with no snow shoveling and significantly reduced maintenance. Our current home is a manufactured one in a resort. We pay an annual fee, but get substantial benefits. Property tax is about $350 a year.
Rather than paying interest to banks and credit cards, we continue to invest what we save avoiding debt.
Another vote for Suzie. I started with a 30 year mortgage at 10.5%, with a two year builder buy down. I refinanced after the two years to 15 years at 7.75%, and made ongoing extra principal payments. I paid the remaining $6,000 balance off a couple of years after I retired, meaning I had a mortgage for a bit less than 13 years. I lived in the house for another 20+ years. I do agree that $70,000 at a low interest rate is a bit different, but I loved living mortgage-free.
Kathy,
I had a similar mortgage situation in the early 90s. Started with a 30-yr mortgage @10% ( putting only10% down required PMI 🙁 ).
After two years rates came down, so refinanced to a 15-yr loan @7.5%.
Result was I knocked 13 years off the loan and got rid of PMI. In addition, the new P+I was the same as the P+I+PMI. An absolute no brainer :)!
I’m surprised by how nearly everyone in the comments agrees that paying off a mortgage beats investing for peace of mind. I expected the split to be closer to 50/50.
I know this is not the grammar you meant, but to my mind paying off the mortgage (1998) was investing for peace of mind. 😄
We paid it off early as a result of multiple refinancings in a declining interest rate environment. Whenever we refinanced, we just continued to make the old payment instead of the new lower payment that also came with a new and unwanted 30 year amortization. At one point the balance got too low to attract lenders for another refi so we put it on our HELOC which was variable but with a ridiculously low floor (under 3%). The end result was our 30 year mortgage wrapped up in 22 years. Never did any kind of analysis on interest savings vs potential gains sacrificed. It was always about having options at a relatively early age and one of the best ways to do that is to limit debt and fixed expenses. No regrets.
I’m on Team Suzie. We paid off our 1996 (6%) mortgage as early as we could. I don’t care if it was a good decision or not, monetarily. It’s just been one less thing to think about for decades now. Being debt-free is what works for me. Plus I made a few of my friends jealous, which is fun.
I like your sentiment. I have to admit, I’ve also teased friends who still have a mortgage lol
Retiring from CA to WA, we bought our “final” home in 2015 with an 80% mortgage. After a few months it occurred to us that paying income tax on money before using it for our mortgage was dumb so we paid it off and are definitely happier.
My first HD article (On the House – HumbleDollar) was on this topic. As it turns out, mathematically paying off the house in 2020 wasn’t a good “deal,” but I’ve never regretted it. Still such peace.
“As I told my wife, if we hate being debt-free, we can easily remedy that problem.” I love this line from your article!
Thanks.
About three fourths of the way through this podcast: Are Personal Finance Gurus Giving You Bad Advice? (Update) – Freakonomics , Morgan Housel, author of The Psychology of Money makes the same argument you made. He says, “It is the worst financial decision we have ever made, but the best money decision we have ever made.” The whole podcast discusses how many personal decisions may not strictly follow the economic theory, but be perfectly logical to the individual.
I can attest to the “feeling great” part. As I’ve written before, this is the second marriage for both my wife and me. She sold her house and I sold my house. We bought a new house together using the proceeds from the prior two sales. All updates/additions have been similarly paid for by each of us. The “comfort” derived from not having a mortgage is very satisfying.
As usual when this subject comes up, I’m on the minority side of the argument, but I love my low-rate mortgage. My cash being readily accessible instead of being trapped in the walls of my house is what gives me peace of mind. A couple of times in my life I’ve needed a whole lot of money very quickly, and had to get a HELOC or a 2nd to access it — a miserable experience. The last time it happened I had the cash at hand, and it was the one element of relief in a terribly stressful situation.
My wife is like yours regarding debt, Mark, and I would certainly pay 8 grand to make her happy, but she grudgingly admits that she likes the look of our account balances and wouldn’t want to pay off our mortgage with that money. She’ll comfortably take care of it when she sells the house.
There’s definitely two sides to the issue. If we hadn’t had a lot of liquidity at the time, I might have pushed back harder about clearing the $70,000 balance.
I totally understand your point of view, and I’m sure many would agree.
The peace of mind we derive from certain financial choices we make is similar to selling down to the “sleeping point” attributed to JP Morgan. Adam has discussed this topic on this site comparing what the calculator shows versus what we feel about an investment decision. Experts may disagree whether you and Suzie made the “best” choice, but I think it was the wise one.
It is good not to have any debt.
The only emotional decision I have “forgiven” myself for when it comes to investing was paying off our mortgage many years ago vs putting it into the market. This is for all the reasons you so eloquently state Mark. Note: I also have never had the fortitude to do the math on this decision but I don’t think it would change anything even if we could do it all over again. The subsequent added benefit was it prevented acting on any temptation to “upsize” after the house was paid off naturally followed by no need to “downsize” in our later years. We stayed put with our nearly 20 year old cars still in the same garage. I credit our depression era parents with the conservative approach and aversion to debt which has lead to sleeping well for the majority of our adult lives.
When we contracted to build the new home, interest rates were still at 3%. Our quandary was whether or not to take advantage of the low interest rate upon completion of the house. We had already been mortgage free for 10 years, and I agonized over the decision. Chris usually defers to me on such things. I was actually relieved when, upon completion of the project, rates had increased to near 7%. Mortgage free is the way to be.
Congratulations Mark! We haven’t had a house payment since 2014 and been debt free since 2012. You can’t put a dollar value on the peace of mind knowing that you and your wife own your home and not the bank. As Dave Ramsey says, Live Like No One Else, So That Later You Can Live and Give Like No One Else.
Mark, thanks for this. I agree with Suzie. And it is interesting that you felt the same relief, even though you are a math nerd. Having no debt is a great feeling. Our parents didn’t teach us much about finances, but they did say to pay your mortgage off before you retire. Chris
Without debt to service (no more mortgage, car, or credit card interest payments) we were liberated. We retired early, left our retirement accounts untouched to grow for years, and were enabled to make choices based on fulfilling dreams. Those choices led to lasting friendships and some priceless experiences.
So I’m a believer in saving for retirement starting in your 30s, keeping cars a long time, paying cash to replace them, paying the balance every month on a credit card, and paying off a mortgage before retiring. Not always easy but, even with bumps in the road, that plan worked for us.
Sounds very like my roadmap.
That’s the only way to do it and hope unforeseen hardships don’t derail us.
Forget the numbers, the interest rates and all that and go for peace of mind.
Our house was paid off several years before I retired, but in 2018 when we finally decided to move to our condo we needed a mortgage again for a few months so we could move before we sold the house. I didn’t like the idea, but had no choice.
Those few months turned out to be much longer. I sure was not at peace carrying a $500,000 mortgage even knowing it would be paid in full when our house finally sold.
Peace of mind is priceless. Good for Suzie.
Being debt-free certainly does give peace of mind; it’s nearly as good as not having to worry about running a business and turning a profit. I’ve so few stressors at the moment, I really should be in a continuous state of Zen!
Enjoy it while you can. Mine has faded away.
“Just in case” we always had a HELOC on our forever home.
Even after the mortgage was paid off. It had a $75 a year service fee.
Silly us.
We found a Condominium we really liked and using a combination of savings and the HELOC we were able to make an “all cash” offer, which was accepted.
9 weeks later we closed on the sale of our forever home, paid off the HELOC, and had a profit.
The HELOC saved us the stress of a “bridge loan”.
No HELOC on the condo now.
If needs be we will sell some investments when we move to a CCRC.
I’d forgotten that when we purchased the condo the banks were offering HELOCs with easy terms; no fees, long duration, etc. So I took one out in 2007. The spouse didn’t like the idea. I told her “In the near future HELOCs won’t be available.” That was 2007 and shortly thereafter the banking crisis disrupted the industry and capital dried up.
In 10 years we had it, we never used that HELOC. It was an alternative source of capital and “insurance”.
I haven’t had a mortgage since 2000, but I have maintained a HELOC that whole time. Here is an HD article I wrote about it:
Lining Up Money – HumbleDollar . At some future date, I expect it to ease the transition to a CCRC.