The Peace Of A Paid Off Mortgage
Lisa and her husband want to know if they should sell all of their stock investments to pay off their house. Dave tells Lisa he'd pay it off tomorrow.
QUESTION: Lisa in Vancouver and her husband want to know if they should sell all of their stock investments to pay off their house. What they have in investments is just about equal to their $380,000 mortgage. Their household income is about $175,000 a year. Dave tells Lisa he’d pay it off tomorrow.
ANSWER: Here’s the way I figured out how to answer that question years ago for myself. Let’s pretend for a second that your house is paid for and you don’t have any money at your brokerage account. Would you go borrow $400,000 against that home to invest in single stocks with your broker? It’s the same thing. Effectively, on your balance sheet, that’s what you’ve done.
There’s no way I’d borrow on my home to invest with a broker, so there’s no way I’d leave a brokerage account open another 20 minutes with a home mortgage. Would I pay off my home and take my old $4,000- a- month house payment and automatically start investing that into good mutual funds? Sure! It’s what I did when I paid my home off years ago. I pay myself a house payment in one particular account, and I like to just see what not having a house payment in that one mutual fund is worth, and it’s already over $1 million.
If I’m wrong and you wake up next spring and you hate having your house paid for and no money in your brokerage account, go get you a mortgage. You can always undo this. When you pay off your house and burn the mortgage, take off your shoes and walk through the backyard. The grass feels different under your feet. The borrower is slave to the lender is deeper than just a mathematical discussion. It frees you up in places you don’t even know you’re stressed in until you don’t have the stress anymore.