Paying Off Your Home May Not Provide The Joy You Expect

Thanks to reader feedback, I realized one financial move that was not included in my top financial moves to relieve stress list, was paying off your home.

Even though I thought long and hard about what to put on the list, paying off your home didn’t get a dedicated bullet point. For those who are intent on paying off your home ASAP, let me share some perspective from someone who has.

Experiences Of Paying Off Your Home

We all have different opinions, experiences, and biases. These differences are why I enjoy reading about various perspectives. Here is the feedback from two readers who paid off their homes.

I think paying off the primary residence mortgage would easily be my #1. If the mortgage is paid off and you die prematurely, the spouse and children won’t ever be forced to downsize to afford shelter. Further, the emotional trauma from your death won’t be compounded by having to move to a lesser home and neighborhood as well.

In this situation, the kids are likely getting uprooted to a new school system and then lose contact with all their friends as well. That’s way too much trauma. It can be avoided if there is no mortgage payment.

– CMAC

Number 1 for me was paying off my house. Nothing financially has relieved more stress and provided more happiness.

Number 2 paying off my business credit line.

Number 3 paying off my business.

Number 4 doing a will and trust

Number 5 paying cash for my daughter’s college

– Bill

Why Paying Off A Home May Not Bring You Stress Relief

I’ve personally paid off a vacation property rental, a rental that used to be my primary residence, and purchased a primary residence with cash.

The feedback from the two readers made me question why I didn’t give “paying off a home” a dedicated bullet point in my post. In fact, before I read these two comments, I had forgotten I had ever lived in a paid off home between 2019 – 2020!

Here are the reasons why paying off a home might feel disappointing after.

1) Ongoing property taxes

Even if you pay off your mortgage, you will still have to pay property taxes forever. If you don’t, your house will eventually be repossessed.

For example, the fixer I bought in 2019 for cash has an annual property tax bill of ~$23,000. Half the amount comes due on December 10 and the other half comes due on April 10. Every property tax notification I receive reduces my joy of having a paid off home.

Then when I read about corruption at the San Francisco Department of Building Inspection and the city wanting to fine homeowners for putting up tiny library houses, I get annoyed. There are bigger issues the city should be focusing on.

When you invest in private real estate funds, you still pay ongoing property taxes. However, the costs are just a number embedded in a spreadsheet dealt with by other people. Therefore, there is no property tax or maintenance stress. All you care about are the net returns as you sit back and enjoy life.

2) Ongoing maintenance issues

Every time there is a maintenance issue, my stress level goes up, not down. A fixer that took two-and-a-half years to remodel has already experienced a cracked kitchen pipe, a blown down fence, and a mysterious fire alarm, which was hilariously resolved.

I will eventually also have to spend ~$18,000 to replace its roof and another $3,000 to replace the upstairs furnace. Upkeep is all part of owning physical property.

I’ve only been in my primary residence since 2020. However, I’ve already had to replace a door handle, several rotted wooden deck planks, buy a new washer/dryer, and fix a leak. More maintenance issues will inevitably appear over time.

3) Negative real mortgage interest rates

Although I’ve never regretted paying off a mortgage early, paying down a negative real interest rate mortgage is not an optimal financial move. The higher the negative real interest rate, the worse it feels paying off a home.

For example, I’ve got a 2.125% interest rate on my primary mortgage. With risk-free investments paying 5%+, there is no way I’m actively paying down extra principal at this time. It gives me more stress relief to arbitrage the difference and live for free!

However, if my mortgage rate was at 6% and I could only earn a risk-free return of 2%, the paying down a mortgage early would absolutely provide stress relief.

In normal times, most mortgage rates would be higher than the 10-year bond yield. But we are not in normal times, so please take advantage! The inverted yield curve won’t last forever.

When you are able to live for free, you feel like you have won the lottery. You’re already borrowing money for cheap to live in a nicer home than you can afford with cash.

4) Investing FOMO

Paying down a negative real interest rate or a low mortgage means living less for free, which may raise your anxiety a little bit. However, more powerfully, paying down a mortgage means you could be missing out on much greater investment gains.

Investing FOMO is difficult to overcome. It’s why rich people still take unnecessary investment risk!

In a bull market or an economic rebound, you want as much risk-asset exposure as possible. Therefore, it will feel better if you pay down your mortgage right before a bear market occurs. Of course, timing the market is extremely hard to do.

For example, there is currently artificial intelligence mania here in the San Francisco Bay Area. If you don’t find some way to gain exposure, you might feel more anxiety because you’re missing out.

Instead of paying off a home to save 2% – 6% on mortgage interest expense, you may be more inclined to allocate capital to an AI investment to potentially make way more.

I don’t want to miss the boat, which is one of the reasons why I wrote, How I’d Invest $1 Million Today For A Better Tomorrow. Writing these posts forces me to think more deeply about allocating capital.

5) Financial wins never elevate your happiness for long

Sadly, due to hedonic adaptation, we quickly revert back to our steady state of happiness after achieving any type of success.

If you pay off your house, you will feel an elevated level of happiness for maybe up to six months, but probably closer to three months. After that, you will simply take for granted you no longer have to pay a mortgage. The extra security you feel is marginal because of ongoing property taxes and sporadic maintenance issues.

The biggest security boost you get when owning a home is when it was first purchased. If you continue paying your bills, you will feel good knowing nobody can raise your rent or kick you out.

Since you worked hard to pay down your mortgage, you will feel more deserving of a paid off home. The more deserving you feel, ironically, the less financial joy you will experience. I’ve written about this in a post entitled, Overcoming The Trough Of Sorrow.

I worked my ass off for two years to write, edit, and market Buy This, Not That. So when it became a Wall Street Journal bestseller, I was thrilled for about two weeks. Then I started rationalizing to myself, well of course it deserves to be a national bestseller, I have 27 years of financial experience and worked damn hard on it! But the reality is, less than 0.5% of nonfiction books make the WSJ list.

Paying off a home is a great achievement. But I don’t think most people will appreciate it for very long once it’s done.

Perpetual Versus Temporary Financial Moves

No doubt paying off a home will bring you more peace and less financial stress. However, because there are perpetual taxes and maintenance costs to pay, the financial relief may not be as great as expected.

To help you feel better about paying off your home, think about the payoff as a perpetual way of no longer paying rent. If you tell yourself this, then you may feel better.

Out of the ten financial moves I recommend people make, the greater the permanence of the financial move, the more it will relieve stress and anxiety.

For example, once you create a revocable living trust and a death file, you and your heirs are covered for life. You don’t have to worry as much about your dependents not gaining access to your funds when necessary. There are also no ongoing costs to pay. Ah, that feels great.

If you have investments that generate perpetual passive income to cover your basic living expenses, then you feel like you can take on the world without much fear. Wonderful!

But someone needs to stay on top of the investments because it can sometimes feel like a full-time job. As a result, you need to insure you have a backup person to manage your money accordingly.

Term Life Vs. Whole Life

Getting an affordable 20-year term life insurance policy felt the best to me partially because it buys me 20 years of safety. I’m confident that in 20 years, I will not have any more mortgage debt left. Further, my children should be mature enough to survive independently at ages 23 and 26.

But given I just talked about the importance of permanence, it is logical to conclude that getting a whole life policy (lasts your whole life) will provide even more comfort. This is especially true for those with family members who may struggle with mental and/or physical health conditions.

Yes, a whole life policy is more expensive than a term life policy. For most people, it’s better to get a term life policy as I have done. But if you have dependents you worry about and grow your estate to a top level, having a whole life policy may be a better choice.

In retrospect, I probably should have gotten a whole life policy back when I was 30-35. The cash value of my whole life policy would be worth in the six figures by now. As a compromise, I tell myself I did the best I could in saving and investing as much as possible since college.

Paying Off Your Home Is Fine

If you want to pay off your home sooner, go for it. If you’ve paid off your home already, congratulations! Life is so much easier once your living expenses are low.

I’m just warning you about the potential let down you may feel if you’re currently attempting to pay off your home earlier. The harder you work and the more you sacrifice, the less satisfied you may feel once your home is finally paid off.

In conclusion, I wouldn’t concentrate all your efforts on paying off your home ASAP. Instead, be dynamic in your financial decision making based on the economic conditions at hand. Diversify your financial moves to help bring greater peace of mind.

Perpetual or temporary, everything becomes temporary if you give it enough time. Try to make the most of each day.

Reader Questions And Suggestions

If you’ve paid off your primary residence, how long did the joy last? Or did you feel a let down once your home was paid off? Does anybody regret having a tremendous amount of capital locked up in one’s home? Being house rich but cash poor can be stressful.

To take advantage of the long-term demographic trend of migrating to lower-cost areas of the country, check out Fundrise. Fundrise real estate funds predominantly invest in residential real estate in the Sunbelt, where valuations are lower and yields are higher.

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