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Deciding if you should pay off your mortgage

Thoughts on Paying Off Your Mortgage

By: Curt Stowers

The 4 Mortgage-Paying Stages People Go Through

Recently I had a conversation with one of the families that I work with related to refinancing their mortgage. Low interest rates had them asking if it made sense (and it did in their case). As we looked at the numbers, we also thought ahead:

  • Would it be possible to pay off the mortgage earlier than required, and, if so, would it be smart to do so?

The discussion led me to think about the “stages” that I have seen families go through related to mortgages. They are:

  • The HELOC phase – Here the family has a mortgage and a HELOC.
  • The Focused phase – Here the family has a mortgage payment that is manageable.
  • The “Can Do” phase – Here the family has built an investment portfolio sizeable enough to pay off the mortgage.
  • The “Did” phase – Here the family has paid off the mortgage.

What is interesting is to look at the psychologic progression that transpires as families go through this journey.

The HELOC phase can be stressful for families.

In the HELOC (Home Equity Line of Credit) phase, the focus is on “living the life.” Either a bigger house or certain life experiences have risen to the top of the priority list. This has resulted in acquisition of debt that is often times very challenging to cover. This is very common as we are “told” through the media that we can—and should—“have it all.” My experience has been that this phase can be very stressful for families. Stretching to keep up with the Joneses has its price.

The Focused phase is often very comfortable and peaceful for families.

In the focused phase, the pain of debt has been recognized. A desire to live within their means has taken over. Here the various credit obligations have been eliminated—with the exception of the mortgage—and a solid pattern of savings has begun. My experience has been that this phase is often very comfortable and peaceful for families. Taking control of debt and managing cash flow provides a high degree of security.

The “Can Do” phase is often confusing!

In the “can do” phase, the family has saved diligently and is in a place where they are able to pay off the mortgage if they choose. This is a place that most reach much later in life. However, some get there sooner as they have been blessed with solid careers that have allowed them to accumulate significant wealth early. My experience has been that this phase is often confusing!

We are led to believe that being debt free is not possible and now the family could—if they wanted—actually be debt free. While there is excitement at this milestone, there is dissonance in the family’s mind as this is not normal—society says it’s not possible, and they are often surprised that they are in this state.

The “Did” phase – a large increase in joy and happiness

In the “did” phase, the family has “pulled the trigger” and paid off the mortgage. Watching a family transition from the “can do” to the “did” phase is one of the most enjoyable experience I have the privilege of sharing in as a financial advisor. Normally, as part of this transition, we have a number of conversations as to what is the “best” choice for the family.

Turning from the “financial” best to the “significance” best

The concept of best quickly turns away from the “financial” best to the “significance” best. In particular, it’s not about what the best financial move is for the family but what the best move is for the family related to their purpose. Normally the purpose is beyond work, and, as a result, being free from financial obligations is very important.

The decision to pay off the mortgage

often turns into a recognition by the family

to focus on what is really important.

In particular, the lower your monthly required cash flow is, the less important it is to have a high income. Mortgages are normally at the top of the list of largest monthly outflows, so they are a hinderance from stepping into the next stage of a family’s journey. The decision to pay off the mortgage often turns into a recognition by the family to focus on what is really important to them.

The focus choices are quite diverse. However, they are hugely important to the families. Many families who transition to the “did” phase experience this change in focus and, in so doing, realize a large increase in joy and happiness in their life.

How financial planning is about more than numbers

The irony in the above is that, over the long-term, mortgage rate versus investment return rate arbitrage almost always argues for maintaining the mortgage. The engineer in me KNOWS that the “odds on” play is to let the market work for you. And, yes, personally we paid off our mortgage! This is a great example of why financial planning is about much more than the numbers. And it’s a great reminder of why we focus on helping families achieve financial freedom so they can pursue personal significance.

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Photo credit: Todd Kent on

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