Why a Paid-off House Is a Key Part of My Financial Plan

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Up until a few years ago, I was sure I’d be a renter for life.

But when my babies were born I wanted to give them a solid home environment and not need to move whenever my landlord decided to make changes.

With that in mind, we decided to buy an affordable starter house while we were still renting overseas.

We’ve since downsized from that house and continue to rent it out to tenants.

We moved into a smaller property we own in a much better location and so far it’s proving to be one of the smartest decisions we’ve ever made.

A mortgage-free house provides options and financial security, not to mention a consistent home environment for my boys.

Owning a home doesn’t stop us from travelling extensively, in fact, it is enabling us to travel to new, more expensive destinations (more on how further down the post).

That said, the monthly mortgage payment needs to be paid each month and that’s money we could use to pump up our travel fund.

Update: February 2018. We are just one payment away from a paid off house. Getting to this stage has been a culmination of a lot of different efforts including selling a rental property, saving like crazy people and, of course, downsizing to have a smaller mortgage.

We purchased our place for $195,000 in 2013. It was worth around $220,000 when we purchased (you make your money when you buy) and is probably somewhere around the $260,000-$280-000 mark now with the renovations we’ve done.

We wanted a paid off house by 40 and we have achieved this at 38 and 35.

Here’s why we wanted a paid off home even though we are planning a life of travel.

Your payments end eventually

Once you’ve paid off your mortgage you can live in your house for life with just the cost of insurance and property taxes, plus maintenance. The problem with renting is rent never ends.

Rents continue to increase as life goes on, whereas the interest portion of your mortgage will reduce as you pay back the principal.

The reason many people decide that ownership is not for them is due to the huge amount of interest you pay if you take a mortgage on a long-term loan.

We intend to pay the mortgage back early so our interest cost is minimised.

You can leverage home equity into rental property

Another reason we like to own our own property is that we can use the equity in a home mortgage to leverage into rental properties.

Right now we could take over $150,000 in loans to buy a bunch of new properties. We don’t plan to, but it’s nice to have the option.

You can put a nail in the wall – or remove a wall

I cannot overstate how lovely it feels to be able to decorate a space to your own tastes. You can hang a picture on an actual hook or renovate without worrying about landlords taking make-good money out of your deposit.

No inspections

How demeaning are property inspections? I have always hated them, but as a landlord, I understand why they are necessary. Here’s one of many problems that just disappear when you become a homeowner.

Your home gives you travel options

Another benefit of owning your own home is that you can house swap with other homeowners around the world when traveling.

I recently made a post in a Facebook group for world schooling families asking if anyone would be interested in swapping our house in Christchurch, New Zealand for somewhere overseas.

I got responses for homes in Hawaii, Alabama and Los Angeles. For the price of my own mortgage, I can access some very expensive destinations in the world.

If we want to travel for a longer term, we can put our belongings into storage and rent our house to tenants. Or we can rent it as a short-term vacation rental when we travel. Options, people!

If everything goes to shit, you still have a roof over your head

You know, life. It happens. Jobs get lost, incomes drop.

If you own your home (or a significant part of it) you can likely ride out a financial shit-storm by reducing your repayments back to interest only, or even by taking a repayment holiday if you have enough equity built up.

The house is paid off, now what?

So, we’re all convinced that paying back a mortgage is a good idea. The only problem is, what comes after. Can you believe one of the most common ways people find this article is by typing into Google ‘paid off house now what ‘?

I can, because a mortgage is such a massive figure that most people don’t expect to pay it back early. Living mortgage free is not something people talk about.

Banks and financial institutions don’t prepare us for life after a mortgage is paid off.

In fact, one of the reasons I’ve dragged my feet about making our final payment is that for a long time I wasn’t sure what to do when the house is paid off – so you’re not alone.

Making a plan for what to do with the mortgage payment each month after getting our house paid off is something I’ve put a lot of thought into and I think I’ve finally come up with a plan.

Here’s what we’re doing with our money when the house is paid off.

1. Celebrate (and educating)

Celebrate your achievement! You paid off your home. Throw a party. Go out for dinner or take a weekend away somewhere new.

Recognise your achievement and spend a little money if you want to – which can be hard if you’ve been ultra-frugal in order to pay back debt.

Our plan is to spend March’s mortgage repayment on an Easter getaway. I am very excited about this because it’s a tangible way to show our kids that hard work and frugality can lead to something better.

We’ll make sure to talk frequently about how we are paying for our fun family trip, and that it was because of the sacrifices we made when paying off debt.

2. Payback other debt

If you have other debt, it’s likely to be at a higher interest rate than your mortgage. Paying back consumer debt or student loans can be a good use of your money.

Depending on the amounts owing and your own comfort levels, you could choose to pay 50% of your mortgage payment towards other debt, and 50% towards growing a nest egg.

I’m a big fan of saving money while you are paying back debt. The exception is if you own a rental property.

We have a mortgage on our rental property, but we will not be paying that back early. My real estate investment strategy is to have my tenants pay my debt in the form of the rent they pay, plus in New Zealand, we have tax benefits for investment property debt.

It’s not worth our while to pay back the loan on our investment property, as we still have a lot of years paying tax as regular wage earners. When it comes time to retire, however, we will reconsider.

3. Save some

If you are wiping out a chunk of your financial commitments by paying off your mortgage, then you should be able to save some, or all, if you have no other debts to pay.

From April onwards we’ll be directing our mortgage payment in its entirety towards our early retirement fund.

Life after paying off the mortgage will not look so different when it comes to our day-to-day finances as we’ll still be earning the same amount.

So it makes sense that we say no to lifestyle inflation and use the money to build our wealth.

Our early retirement fund is currently held in a low-fee fund (Simplicity Growth here in New Zealand) which invests in Vanguard Index Funds.

4. Max out retirement accounts

Depending on where you’re at in your financial journey, you might have a few years of regular income left.

If you receive a government or employer match for your retirement funds, putting some of your mortgage payment towards maximizing those benefits is a really smart move.

Once your house is paid off, the options for what to do with your money are seemingly endless.

One thing’s for sure though, no matter what you do next, you’ll always own the roof over your head. Ain’t no better feeling.

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We're focussed on paying off the mortgage on our home. A mortgage-free house provides options and financial security, not to mention a consistent home environment for my boys.

About Emma Healey

Emma is a recognised family finance and budgeting expert and founder of Mum's Money. Her advice has been featured in Readers Digest, Yahoo Finance, Lifehacker, The Simple Dollar, MSN Money and more.

31 thoughts on “Why a Paid-off House Is a Key Part of My Financial Plan”

  1. I have to agree I’m all in favour of destroying my mortgage. I’d rather have all those extra interest payments I would have made compounding away in my favour rather than against me. I also value the flexibility/security of not being liable for a large monthly payment to the bank. I think a lot of people forget that until the mortgage is gone it’s the bank that owns your house, not you!

  2. Those are some solid reasons for your choice! The buy vs. rent debate comes down to a lot more than just financials, and I think there are reasonable reasons to do both. It’s not just an ordinary expense; it’s where you (presumably) spend a huge amount of time every day. I still own my condo while we’re traveling, and it’s earning us rental income while we’re away. There is some comfort, like you said, in knowing that we could always go back and have a place to sleep if something went really wrong.

  3. Great post Emma. I do think its a smart move to own your own home. Its great that you also make cash from your home while you travel. I’m going to look into that house swap idea as accommodation while travelling is such a huge expense. If I was buying for the first time I would by the cheapest house I could, pay it off and then stay put. Then build up my net worth in other ways.

    • I really do hope that house-swapping works out for us as it will save so much money. Plus I love the idea of just going where the wind (or available home-swaps) takes us.

  4. I absolutely concur.
    We are small house advocates. We bought 5 years ago, and even with me being unemployed, at home parent or studying for most of that time, we are on track to pay our mortgage off within 5 years. Now we are looking at investment options, including rental property.
    That will then free us up to travel more too, which is high on my agenda.

    • Right – not having mortgage stress when you are a stay at home parent or between jobs is wonderful.

  5. I agree that a big benefit of buying is that you can get rid of that house payment someday. That is one less thing you need to get the income to cover once hitting financial freedom which is huge. Even though I feel like renting Everytime something breaks around here haha

  6. Even in Auckland I think it makes sense, if you plan to stay put and can swing it financially.

    For me this is where I grew up, where my people are, jobs are, everything we want.

    • Fair enough. I personally couldn’t swallow spending over half a mil on a unit because it wouldn’t allow us to travel, but if that’s what you want I get it. That’s why we left Sydney, I loved the lifestyle there, but no way in hell was I spending 700k on an apartment.

  7. One other big thing that paying off your home can do for you that not a lot of people realize: Reduce your retirement needs. In the research that I did for one of my ebooks, I found that paying off your mortgage early can reduce the number of years you need to save for retirement by 25%.

    • Wow – that would make a huge difference. Paying rent when you are living off a reduced income is definitely not optimal!

  8. I’m in favor of both – it just depends on what stage of life you’re in! Home ownership at a certain point didn’t make sense for my parents because they weren’t financially stable enough to manage a mortgage and they would have been paying that mortgage til they died literally, and still owed money on it. Renting gave us flexibility to find what worked for our budget and as long time renters, we rarely ever had significant rent increases. I would have liked to have equity by now for them but I moved away and having to manage maintenance from afar would not have been possible. My surviving family are not what you’d call reliable so I keep a roof over their heads and don’t have to worry about paying taxes or paying for long term maintenance items.

    In the Bay Area, though, real estate is outrageous and renting is far less stable because of it. I’ve had friends priced out of rentals in a single lease renewal by more than $1000 per month. Here, if you can get a decent price or a fixer upper (decent being defined much differently to the rest of the country!), you’re better off with buying and powering through that mortgage.

    I’m always mindful that even if you pay your loan off free and clear, though, you still have annual property taxes. It’s a terrible thing to forget about that and lose the paid-off home due to unpaid taxes.

  9. We were able to pay cash for our home because of an inheritance. We knew we didn’t want a mortgage; so we moved out of the city and to a large property not far from a town of 100,000. The schools are excellent; we have terrific neighbours; and we’re only 90 minutes from Melbourne’s CBD, although employment options in the town of 100,000 are excellent so we don’t have to commute for work. In the time we’ve been here the value of the property has increased such that, were we to sell, we could easily pay cash for two homes in another non-capital-city part of Victoria. Really, property in Australia is not expensive if you don’t buy in the capital cities.

    We believe that owning a home is important; it gives you so many options. We have been a single-income family; a dual-income family; and now we’re back to being a single-income family. We can afford this because we don’t have to worry about rent or mortgage payments. We can also afford to be pickier with our employment – if we are looking for a job we can wait until the right job comes along rather than taking the first thing that is offered to us because we need the money. As well, the equity in the home allows us to borrow against it for other investments. (We haven’t done this because it does not fit with our risk profiles; but it is a financial strategy for some people, depending on their risk profile.) In the future, we may opt to rent out this home; or as I said if we sell it, we can afford to pay cash to buy two more. Owning our home has also allowed us to add value on to it (something you cannot do if you rent): When we moved in the layout was awkward and it wasn’t suitable as a family home. We’ve built walls, taken walls down, created rooms, renovated, replaced, etc. – all of which add value to it.

    Quite apart from that, it gives us a safe and stable place to raise our family. The security of knowing the home is ours, and that a landlord can’t kick us out, or the bank can’t take it off us, is priceless.

  10. These are all excellent reasons — and the key is to actually pay off your house! Home ownership will never be worth it if you upgrade to a bigger home every time you get a chance — constantly growing that mortgage payment. However, if you do hang in their and pay it off, you should be good to go!

    Thanks for sharing and keep up the great blogging!

  11. House swapping! I had never thought of that before, but it sounds like a great idea.

    I completely agree that being free of a mortgage is so important because of the security it provides. Aside from taxes, we’ll always have a place to call our own no matter what happens.

  12. Wow, great article. We as well have set off on a path to financial freedom. The
    House being paid off is a major point for us. I love all of your reasons to pay it off also. I write about debt free life too at lifeforthepennywise.com I also love your ideas on home swaping. I would love to swap my home in Colorado like that! So fun!

  13. Great advice! I think if you can swing being a renter while saving and investing then keep it up. That’s what we’re doing! Your advice on making sure the home is affordable is key in that decision however. I am so excited for you and your family on wanting to travel the world, and it’s so cool to hear that you’re not afraid to be a home owner while being an adventurer. Great Job!

  14. My house will be mortgage free in August which is cause for celebration and sadness for me personally.
    My son Bret Aspling gave me the 4000.00 down payment in Sept 2000 on our rent to own home. We rented 18 months before I could get and had a periods of financial insolvency when construction hit bottom and I became disabled. But together myself him and little sister persevered. He died suddenly on May 8 and now I am going to get it ready to sell this fall. After reading several blog articles stating no savings or not much savings in getting a 15 over a 30, I only know in my experience it was a significant savings and my credit was none too good, my rate was 7.5. I paid 37, 000 in interest over the life of the loan of 65,900 with some late fees. The terms had me paying 119,000 in interest over a 30 year period. I may have dropped out of school in the 9th grade but I’m not a complete idiot.

  15. I chose home ownership too but the idea that kids care or benefit from home ownership versus renting seems pretty speculative. Kids only care about being loved and held accountable. They’d be just fine living in a tent or a refrigerator box in my opinion. Houses matter to adults, being loved matters to kids. And yours are well loved by a great mom so they are truly blessed!

  16. Hi, im 6 months away from heading off with the family for a year or two, cant wait. Being completely debt free is the key. Im in Christchurch for a nursing course if its not too stalker’ish would you like to meet for drink and talk family travel?

  17. Great Article Emma !!!
    Here in US, people generally keep mortgage for 30 years because they get a tax break from government for owning a home. In reality, if they just add the interest for 30 years, the house prices comes out to be more then 3 times the original price. Great that you will be done with your mortgage in March/April 2018. What a peace of mind? And you have a plan on what to do with the money? That sounds awesome. Surely, you will be hitting early retirement and travelling a lot. I will be implementing your strategy.

  18. I paid my house off a few years after my divorce. So, I really didnt get to celebrate it with anyone, and yet I felt the achievement anyway, and I felt true free both financially, and free as a single Male. I love the solitude I get while driving in my car to just get groceries. There is no better feeling than NOT paying a mortgage — that came from earning money from a job you hate as well. So, there you go again… the mortgage basically organized my slave mind, but after killing the mortgage, it organized my liberational mind. There is no better way to be yourself at work or play, than having no debt.

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