Why would we pay down a fixed 4 percent mortgage loan when we could invest the extra money in the stock market, real estate, or a business with potential returns of much more? Even someone who isn’t financially savvy can do the math here. To top it off, what about the tax deduction on mortgage interest!?
In the past 9 years, we had refinanced our mortgage twice, used money that was pegged for real estate to purchase two nearly new cars, and were now getting ready to go further into debt to invest in real estate. Where would it end? We realized that if we wanted to achieve financial freedom, it was time to ditch the debt completely. Even the mortgage debt.
The behavioral benefits of being debt free spill over into all aspects of life. There is less stress and worry by eliminating the largest bill in most households.
By paying down your mortgage you are basically getting a guaranteed return in the amount of your interest rate. While stocks result in higher returns long-term, you never know when the next 30 percent drop will happen.
Achieving financial freedom is a relatively simple equation. You need to spend less than you earn and invest the difference until you get to 25 times your expenses. While you can certainly increase the earning side, there is also a benefit to lowering the expense side.
By aggressively paying off mortgage debt we make ourselves more resilient during a recession. Another recession is coming (we just don’t know when) so hopefully people don’t make the same mistakes as last time. Having a paid-for house will significantly reduce the amount of stress during the next downturn.