What happens when you finish paying off your house?
My wife and I paid off our house in late 2017 and this is what happened to us.
We called the bank and informed them of our intent to pay off the mortgage in full. They responded that they needed $x by 5pm to have the mortgage paid off in full. We told them to look in the one account we had at their bank and that we have already moved the money into that account. They transferred the money from our account on to our mortgage account, hence paying it off.
We drove to the branch where we first got the mortgage 18 months prior and brought some cupcakes and coffee. We treated the staff because we were celebrating having just paid off the house and being 100% debt free.
Our loan officer was surprised and said, “I knew you guys wanted to pay off the mortgage early but I never expected this early.” Our original plan was 4–7 years. Dave Ramsey (financial talk show host) says most working his plan pay off their house in 7 years and most millionaires pay off their house in 10 years. We were lucky to come upon an investment that took off that we were able to sell it and pay off the house. This resulted in a huge nearly $70k tax bill (answer for a different question).
Dave Ramsey says once you pay off your house to go outside and walk through the grass barefoot because it will feel different. We didn’t take his advice because it was nearly winter time and snow was on the ground. Instead, my wife and I continued our celebration by going to a local fine dining restaurant to enjoy a nice meal. Emotionally, we didn’t feel different at all, it was like nothing really happened.
The following month we noticed an extra $1,600 in the bank account that we moved off into a separate account to save and invest for the future. That same month we received a letter from the bank that our mortgage was paid and we received communication from the county that our deed to our house was now clear.
It took three months from the time we paid off the house to have an emotional change. Perhaps this is because it was now March 2018 and the snow had melted and we could actually go outside and feel the grass under our bare feet. I’m not sure, but what happened is that my wife and I realized that we don’t need to keep on going to the same job every day. We could choose to be a baker at the Walmart Deli if we wanted to be. We could choose to be a photographer. We could choose to be whatever we wanted to be. We were no longer beholden to our job that makes a good salary so that we can afford the mortgage payment every month.
This realization gave us more flexibility with our life choices and our careers. We also realized that we have been working so hard on financial goals to get out of student loan debt, save up for an emergency fund, save up for a down payment, pay off the house, etc. that we didn’t have a future goal anymore other than to save for retirement. This is when we realized that we needed another short term goal and we both decided to buy more real estate in cash and we needed to start saving up for it.
Then April came along and we needed to pay our first half payment of our property taxes. Then May came along and we needed to pay the full year of our home insurance. Then October came along and we paid the other half of our real estate taxes. By this time in October we found the real estate area that we wanted to purchase in. By April of the following year we made another tax payment and we flew to the area where we wanted to purchase our next real estate and we paid cash for it in May. We also found more real estate in the same area and started saving up for that as well. We are planning on going back next year and paying cash for more property. We plan to continue doing this while we can.
So what happens when you finish paying off your house? You get the freedom to make choices in your career that you might not have otherwise made and you get to invest in cash and grow your wealth. I recommend everyone pay off their mortgage and get on the path to wealth building. It is really the only way.
TVM man. you just paid off a $X mortgage at 3% when you could be getting a compounded $X mortgage payment amount at 6%-10%.
You just lost 3%-7% a year, so assuming a 100k loan payoff and taking the difference of the higher interest rate, you just lost about $3.5 million over 20-years.
Congrats, I am going through the steps right now myself. It must feel amazing to no longer be a slave to debt. People talking about the missed opportunity to arbitrage yield have little understanding of the profound psychological change that occurs when you no longer fear getting laid off, losing your job, or continuing to work a job you hate due to absence of monthly payments.
You could now setup a reserve high-yield savings account that is dedicated to future tax bills to create even more security. Please wish me luck and pray for my wife and I as we seek to do this too.
I think he should fear getting laid off even more. Where before he had this extra cash, now he has to pay taxes. If he gets laid off and can't pay his taxes, the house is no longer his.
Maybe he is flush with cash, and that doesn't make a difference....
I mean you never know what markets are going to do, but he seems bullish as he wants to continue to invest. I think missing out of $3.5 million or any million payday is a huge risk.
While on paper this sounds great, it's overly academic. You get so much optionality in life by being debt free and having cash in the bank.
What if you can now take a risk and start a business that ends up cash flowing way more than the $3.5m over time? Or you invest in real estate deals with 13-15 IRRs. Or they can switch careers to something that pays less up front but has much higher pay down the road? I could go on and on.
The only reason I am where I am is because I was fortunate enough to get out of undergrad with 0 debt, and I'm not foolish enough to think otherwise.
I think it's a bull shit advice. It also feels good to have your cash in your bank not invested in anything and just looking at it, those numbers are nice - but we can all agree it's a stupid advice.
I have been investing in properties for a long time - rates are at 1.29% in Europe. I can't deduct my mortgage interest from my taxes but in the US you CAN! How fucking incredible is that?! The tax shelter alone should make you not want to pay back your mortgage, ever.
If you don't like stocks and believe in property more, than just go and lever up on another property rather than paying off your house. Plenty of reasons to take leverage on your house as well, banks are much more willing to give you cash for your main home, much less for a buy to let investment. You should see your house as a piggy bank. So you paid off your house and have no more savings, great. You still need to work. Lever up your house and do all sorts of investments and assuming you don't take too much stupid risk you might be in for a chance of early retirement. Rich people USE debt, that's why they are rich. I pitty the fools who just want to feel the grass on their toes.
Sure if rates go up to 10% and your junk bond yields drop to 1%, it might make sense to pay off your mortgage. In today's environment it's bonkers to pay it off. If you fear a crisis even more! Take on as much debt as possible and just walk out if it all goes to hell.
The paying off your mortgage because it feels good should not be on a finance forum where people supposedly understand leverage. It's the basic of how companies operate and PE works. You should run your life like a company not like a hippie.
Yikes. Guys, OP's giving advice that fits their situation. Not sure how old everyone is here (op and commentors included), but feels like some comments arefrom people who have never seen a recession nor lost a job.
Also, different investors have different risk profiles. Even if it wasn't the most financially prudent move, OP FEELS better. Derisking here might allow them to take risk in other places or, I dunno, just chill out. What a bunch of hardos.
I'm probably going to get MS for this, but you guys need to chill the f out.
Except it's being presented as advice for anyone. Thus, it is open to criticism on those grounds. The OP doesn't get to claim special privilege on those grounds.
It is objectively terrible financial advice. Scared of a recession? Take out a low leverage mortgage. Banks are thrilled to give 30-40% mortgages. Calculate what you'd make as, say, an Uber driver, or some other at-will, easy employment, and size on that.
Telling people to be afraid of debt may help people not be stuck in a grind of poverty, but it will not help them become wealthy. Besides which, it's not advice; it's a truism. People know debt can be dangerous. No one sitting on six figures of credit card debt thinks "oh shit, I wish I knew there was a downside!". This guy is giving "advice" that amounts to no more than received wisdom, while failing to explain or use nuance in saying that debt can be a very powerful tool if used wisely.
I mean, you're starting to conflate two mostly unrelated issues, right? You are 100% correct in reality and as regards human psychology, but if we're talking about giving advice, we're talking about best practices. The proper advice is to warn people of falling into that trap and advise them to pick a car they could afford all cash and then try and finance it.
The issue isn't the debt terms, but the impact they have on buying habits. That is a point well taken, but not one that should impact the ultimate value of the advice being given here. Debt is a powerful tool, if used wisely. Taking out debt with horrible terms is not wise. Using debt to buy more of an item than you need is not wise. This is what I'm getting at, and perhaps this Dave Ramsay guy makes it clear, and I just don't know. If his blanket advice is "avoid debt" then he is doing a massive disservice to the people who buy his course. Because again, that isn't advice, just paternalism. His advice should be around how to right size your leverage given a spectrum of incomes and potential purchases, while explaining the potential pitfalls and offering strategies on how to avoid them.
Otherwise all he's saying is "spend less than you earn and use the remainder to pay off debts". And while that is maybe worthwhile advice, wouldn't you feel like an idiot for paying anything to hear it? That is exactly the kind of expenditure he'd be telling you to cut`
Most of the course is about psychology. For example, psychologists have found a clear connection between paying cash for a good/service and directly feeling the pain/loss of the transaction. There is a real exchange of tangible bills which is far different from, for example, swiping a piece of plastic and not seeing the purchase even hit the checking account. The credit card transaction was designed so consumers do not feel the pain of the transaction thereby influencing consumers to spend/consume more. Additionally, the move to phone app-based transactions allows the consumer to even feel less pain/loss than the swipe of the credit card which is why this is being pushed to heavily.
Sure, theoretically if someone pays off the credit card balance on time and in full it is beneficial to receive points but this ignores the aforementioned proven psychological aspect. Additionally, this specific course is from a Christian point of view which regards usury as wrong and by personally starving the "beast" of credit card fees one does their small part in fighting back against the credit card industry which creates an immeasurable amount of pain in America disproportionately affecting middle and low income households.
The entire predicament America is in now with $24T in national debt and record high credit card, automobile, and student debt is because of our acceptance that personal debt is a normal part of life and it is OK to seek instant gratification in lieu of saving up and paying cash for goods/services.