Guest Post: Should You Keep Your Mortgage or Pay It Off? 



We have a great guest post from JT of Just Making Cents today on a very relevant topic, paying off your mortgage.  Enjoy the read!


Hi everyone, I’m JT, and I’m so excited to be a guest on MSM, a site I’ve been a fan of for some time!  I’ve spent over 15 years on Wall Street and try to apply what I know about money to personal finance, faith, and parenting my 3 kids.  I hit my retirement number in my 30s and helped my children make, save, and invest hundreds of dollars of their own money.  And if you can’t tell, I also love super hero movies.  If you like what you read here, check out my site Just Making Cents!


Should You Keep Your Mortgage or Pay It Off? 

We sat down.  He pulled up his laptop.  His expenses filled the screen. 


My heart sank. 


The numbers before me told a story of debt grown unchecked, like a many-tentacled monster.  We came up with a plan to fix it, but the next scene in his movie was going to involve a lot of sacrifice for him and his family.  When debt ensnares you, it leaves casualties.


Help! Help! My finances!


I hear this cry of distress a lot.  And it usually means “I’m being strangled by debt!”


Many of you know, or know someone who knows, this panic.  Because of this experience, we think of D-E-B-T as a four letter word.  We struggle to think of any situation where debt can be good. 


So then why am I keeping my biggest piece of debt – my mortgage – even though I can pay it off? And why does it make sense for some of you to do the same?


First, let’s start with understanding the two types of debt. 


Villain vs. Hero, or: Bad Debt vs. Good Debt

Debt is like what Vince Vaughn’s character, Trent, describes in the movie Swingers:


“[T]he guy you’re not sure whether or not you like yet.  You’re not sure where he’s coming from.”


Debt, like the best characters (and Trent himself), is nuanced.  As someone who has lived through the financial stories of hundreds of companies, friends, family, and people who ask me for help, let me show you how to identify when debt is a hero and when it’s a villain.


keep mortgage or pay it off


  • Bad Debt (Villain):  This is meant to be short term and is structured that way.  How do you know?  The high interest rates and high penalties for not paying off your debt soon or on time should tell you that this type of debt should be paid off within a month.  The most popular short-term debt is, of course, credit cards.  Credit cards are fine if they’re treated like short term debt.  It’s when short-term debt mutates into long-term debt that it turns bad.  Personally, I use my credit cards to buy just about everything to get cash back rewards.  But, I make sure I never spend more than I’m able to pay off completely when the bill comes…or else bad things will happen.
  • Good Debt (Hero):  This debt is meant to be long term and structured to help you improve your cash flow.  This kind of debt has allowed millions and millions of people to advance in life, either in the form of student loans or mortgages.  They’re heroes if used correctly.  And, if this debt is secured by assets, like a house is for a mortgage, they’re also cheap. They’re cheap because, unlike credit cards, the bank can seize your home if you stop paying for long enough.  This means that it’s not super risky to the bank.  When long-term debt mutates into short term, it doesn’t go bad, but you might be missing out on some amazing feats of heroism which I’ll show you below.


(Mr. MSM himself has already done an excellent job of discussing debt with this post.)


Next, there are two things I’d like to show you that can really give you a framework for thinking about your mortgage.


Your 2 Financial Super Powers

Lucky for you, you have two financial super powers you can access to really boost your money when you harness them correctly.

  1. Fungibility (Shape Shifting):  It sounds like fungi, but they’re completely different.  Fungibility basically means that one dollar can be substituted for another.  So if you get $1 from a friend or pick up 4 quarters off the street, it doesn’t matter the shape or from where.  They are basically the same when in your wallet.  Either can buy you that protein bar equally well.
  2. Leverage (Super Strength):  Ever wonder why many companies borrow money even when they don’t have to?  They use debt to buy an asset to improve shareholder value.  This is called “leverage.”  And it can help you lift much larger financial boulders than you’re capable of now.  In the example I’ll show you below, you’ll see why so many companies use leverage.


If you have any sort of debt now, you are using leverage whether you know it or not because of the fungibility of money.  However, you might not realize that leverage has not been working you.  Let’s change that.  I’ll show you how to harness your super powers to your advantage.


(Want to give your child financial super powers?   Download the FREE Guide to Helping Your Child Start Their First Business right here.  You’ll also get access to a FREE course on how to get your finances in shape for early retirement!)


How Can You Use Your Mortgage to Boost Your Finances?

Here your story takes an interesting twist. 


You somehow stumble upon this amazing machine.  This machine can make you $7 for every $100 you feed into it.  On the other side of the machine pops out your $100 along with the $7 it made.  Sometimes it makes you more.  Sometimes that machine breaks down and swallows part of your money.  But over time, it all averages out to $7.  Would you try it? 


Of course. 


Just as you pull out your only $100 to feed into the machine, out of the shadows emerges the character DEBT.  He wants to get in on the action.  He offers to lend you $80 of every $100 you put into the machine in return for a cut of your $7.  Should you take him up on his offer? 


It depends.


You need to find the rate he’s charging you to borrow that $80.  So if DEBT wanted 16% in return for letting you borrow his money, you would need to pay him back $12.80 in addition to his $80.  Basically, that’s all of the $7 the machine makes and $5.80 from your pocket.  (Not coincidentally, 16% is the average credit card APR) Don’t fall for his evil plot. 


But, say DEBT wanted to lend you the money for 3.5%.  What happens?


If you don’t borrow from DEBT, then you’re limited to putting in that single $100 to get $7.  But, with his loan, you can feed $500 into the machine.  Here’s how:  If DEBT offers you $80, then you only need to add $20 to make $100.  And since you have $100 (the equivalent of five $20s), you can put in $100 five times, or $500.  So you take his deal.  Nervously, you feed the $500 into the machine.  It creaks and sputters, but on the other side spits the $500 you put in and $35 extra dollars. 


Before you can even count it, DEBT has his hand out.  Because you expertly chose the 3.5% rate, you give DEBT back his $400 and $14 ($400 x 3.5% = $14).  You’re left with your $100 and $21 extra dollars. 


So without DEBT, you made 7% ($7 for every $100).  But with DEBT, you made 21%, tripling your return!  That’s the super power of leverage and in this case, DEBT was a hero.


keep mortgage or pay it off


You might be wondering how you get DEBT to give you the 3.5% option.  Pretty easy:  it’s your mortgage.  Ok, you have a follow-up question.  Will real estate give you 7% returns like this magic machine does?  With some exceptions (like in housing bubbles and certain high demand areas), it has not. 


So is this story pure fiction? 


It would be if you didn’t have that other super power: the fungibility of money.  Here’s how it works:


Let’s say you have $35,000 burning a hole in your pocket and $28,000 left on your mortgage.  Should you keep your mortgage or pay it off?  If you pay it off, it will be a fantastic accomplishment.  You are no longer held down by this debt.  The day you pay it off is when you discover you can fly.


But, if you keep your mortgage and invest the $28,000 in the S&P 500 and it makes its historical inflation-adjusted return of 7%, you’ve basically used your cheap mortgage to leverage your investment to get that 21% return.  (Did you catch that fungible shape shift?)  And that 21% return doesn’t take into consideration the tax deduction you get from your mortgage. 


Now, it’s important to remind you that the S&P 500 could have a down year, in which case you could end up with less than your mortgage balance.  For many of you, this possibility is so scary that you’d rather go for the sure thing.  There is nothing wrong with that, but it’s important to understand your choices.


So…Should You Keep Your Mortgage or Pay it Off?

Look, if you’re fortunate enough to have the money to pay off your mortgage now, you’re doing very, very well.  Paying off your mortgage now would be a great decision.  But there are reasons to keep it anyway, and the reasons might resonate with you.  So, when you come to that moment where you’re fortunate enough to ask yourself if you should keep your mortgage or pay it off, here are some thoughts to consider:


  • When Should You Consider Paying Off Your Mortgage? If you’re planning to retire soon and have enough assets afterward that can still generate a return for your living expenses, it might make sense for you to pay off your mortgage now.  Paying off your mortgage will have the most dramatic impact on your expenses, and reducing your expenses is the most powerful factor in helping you retire early.  Also, if you can’t stomach the risk of your investments losing money when you’ve used your mortgage as leverage, then pay it off.
  • When Should You Consider Keeping Your Mortgage?  If you want to use leverage with cheap debt to continue maximizing your asset growth, then keep your mortgage.  But make sure you’re actually investing that money rather than spending it.  If you’re not investing it you’re not benefitting from leverage, and in many ways are hurting yourself.  The ability to get debt cheaply is one of the cornerstones in getting wealthy. 


So it really comes down to whether you plan to play the short game or long game, and your risk tolerance. 


How Your Story Ends:

How do you want your money movie to end?  In this choose your own adventure, what you do with your mortgage can dramatically affect your outcome.  Regardless of which you would choose, however, your true aim is to get yourself in position so that you have the option of paying it off or keeping it.  How do you get there?  That, dear readers, is a different story for a different day.


Now roll the credits!


(Do want to pay off your mortgage early but it seems scary and out of reach?  Download our guide to Achieving Your Goals FREE here.  You’ll also get access to a FREE course on how to get your finances in shape for early retirement!)

Mustard Seed Money

Welcome to the website. A mustard seed is a very small seed but astonishingly grows very large over time. My hope is that through your financial journey that your small investment in time, money and faith will grow beyond anything that you could ever imagine.


  1. Great analysis, JT! I like that you present the pros and cons of each method to show that it depends on everyone’s finances and long term goals. It doesn’t have to be one way or the other.

    Mr. FAF and I both agree to pay off our mortgage asap because we simply don’t want to be on debt no matter how low the interest rate is. 🙂
    Ms. Frugal Asian Finance recently posted…The Free Article That Helps Our MarriageMy Profile

  2. I’m not close to paying off my mortgage, but I think I’d likely pay it off given your example above. I understand everything you’re saying and it makes perfect sense. But, something about not having that payment would really give me a sense of relief. As we all know, a large part of the market and money in general is psychology. So, I anticipate that would be my thought process and motivation. Get it done! Great article and illustration. Thanks for sharing!

  3. Great Article. Unfortunately these days, people can get themselves into a lot of trouble with low interest “long-term” debt as well – AKA – Lines of Credit. These are becoming easier to access and hugely abused as substitute for Credit Card Debt. Very sad and strangling in our society.
    Monica recently posted…Go for Freedom with SWR – Retirement Part 3My Profile

    • Thanks Monica! I’m guessing you mean a “home equity line of credit?”

      I totally see what you mean by the abuse. I like to compare debt to a lot of things, but one of them is sugar. Up to a certain amount, it’s good for your body, but we eat too dang much of it! We’re addicted to it.
      JT@JustMakingCents recently posted…Should You Keep Your Mortgage or Pay it Off?My Profile

  4. I always have this “discussion” with folks, especially after we paid off our mortgage early (9 years in advance).

    I can’t argue with the numbers or the facts. As an engineer, I can see that keeping a 3.5% loan, while using the funds in an S&P500 that traditionally returns 10% is a good thing.

    The only point I would push back on is the emotional side. Being completely debt free frees up a tremendous amount of monthly cash flow, and suddenly you see that you don’t have to spend much to live. Suddenly FIRE looks within reach!

    The other point that I would make is that folks have been waiting for the last 4 years for another recession and for the market to tank. So the question really should be “get a guaranteed 3.5% return, or a potential for 10%”. In our case, we opted for the guaranteed about 12 months ago, and suddenly, I’m less than 3 years from FI. recently posted…Real Estate  – starting to do further researchMy Profile

    • @kevin, when everything goes as it should, leverage to invest works. Its when it goes the other way or there is a correction is when folks do silly things.

      A $10,000 investment in SPY 10 years ago is now worth $19,689.91 & that takes into account when all heck broke loose in 2008

  5. MSM, this is really an honor for me to be guest posting here! Thanks so much for your hospitality and for everyone here who is keeping the dialogue open. One of my favorite things about this site is the reader engagement. I find myself reading the comments just as much as the post itself!
    JT@JustMakingCents recently posted…Should You Keep Your Mortgage or Pay it Off?My Profile

  6. Great analysis. I enjoyed reading this well thought out breakdown of the pros and cons. As you wrote, not all debt is bad. We keep a small mortgage. We could pay it off, but will probably wait a few years.
    Dave recently posted…Peer-to-Peer Lending (P2P)My Profile

  7. You present good arguments, JT. I’m retired, not early retired, just retired-retired. And I was waiting to see if you ‘d get down to that point and you did. I still have a mortgage (not ideal, I know), and so I’m trying to pay it down as much as I can and get rid of that beast. If I were in a different position, I might be pumping that extra cash into the market, but not at my age.
    Gary @ Super Saving Tips recently posted…Avoid a Summer Meltdown with These Ways to Keep CoolMy Profile

  8. My mortgage is a beast but low on the priorities right now. First student debt and sons 529 along w taxable accounts to live on. Then mortgage. I figure if I go part time or retire early I will downsize, so I can deal with it then.

  9. My struggle with paying off a mortgage early or not isn’t math. The math is simple. The emotional impact, however, is not so simple. That’s the main thing keeping me on the fence.

    Plus, I want to go into early retirement without a mortgage payment if possible…though if you’ve got enough money saved up, then it doesn’t matter, really.

  10. We are nowhere near close to being able to worry about this yet. However, we have refinanced 2 times since moving here and each time I’ve taken any cut I have been able to get and applied it to reducing the length of the mortgage and working towards getting it over with.

    At this time though, we are working to beef up our investing rather than put extra towards our mortgage though, so I guess we are letting the debt help us make the higher returns in that regard!

    Very well written argument, one of the. Enter that I’ve seen! Thanks for sharing!

    • Appreciate the kind words, Steven! I also refinanced last year to a 20 year (I was 4 years into a 30 year mortgage at that point) because I could reduce my length by 6 years and reduce my mortgage rate (it’s now 3.25%) to enhance my leverage. Refinancing is a wonderful option. Best of luck to you in your financial journey!
      JT@JustMakingCents recently posted…Should You Keep Your Mortgage or Pay it Off?My Profile

  11. @JT, if you are FI, are still working for a paycheck, still have a mortgage, plus a family to provide for – then this is huge stress in my book..

    I’m 100% for mortgage free as I am for leverage to invest, then again, how many folks are super human to be able to do this YOR?

    Quality of life, health & family first, hang up your suit, shred the white collar & tie & ditch the briefcase Do you really need that IPhone/Ipad or laptop.

    Maybe not now, likely sometime in the future is the time to think outside the box when you have all the time in the world on how to make enough money or just have that 2x income/expenses so that you can well & truly be retired without having to answer to anyone.

  12. Great post! I think the tax matter can be a big issue. As I see it, if I have $10,000, a marginal tax rate of 35% and a mortgage at 3%, I have the following options: (1) direct it towards the mortgage and save on interest (and forego the tax deduction); (2) spend it; or (3) invest it. Under some scenarios, I think it’s better to invest it and take advantage of the mortgage interest tax deduction. I guess it depends on everyone’s individual situation, but it can mean more wealth in the long run.

    • Right on, Miguel! The tax benefit is super important and one I emphasized more in my original draft, but I didn’t want to distract from the pure power of leverage, so I just put it as a sentence. Agee that it has to be the right scenario. You definitely don’t want to do that with credit cards, though smaller real estate developers do.
      JT@JustMakingCents recently posted…Should You Keep Your Mortgage or Pay it Off?My Profile

  13. Great analogy JT. I am a huge fan of good debt. I never want to pay off my mortgage. In fact, if I can refinance and borrow more to invest, I will more than likely do it. I have refinanced my mortgage three times within the last nine years and it had helped me built a stock portfolio of more than a million dollars.

    In my opinion, the stock market is only scary if you don’t take the time to understand it’s strength and weaknesses. I like to exploit its weakness to create opportunities and harness its strength to increase my earning power.
    Leo T. Ly @ recently posted…Protect Your Online Personal BrandingMy Profile

  14. I have chosen to keep my mortgage debt around for now. I’m focusing on building up stock portfolios. We have a decent rate at 3.25% and like mentioned, the tax break does help a bit. It will be nice to have the mortgage done sometime in the future though. That would really increase the cash flow!
    Mr Defined Sight recently posted…Moving Is A Pain But It Scratches An ItchMy Profile

  15. There are so many variables that go into deciding whether to pay off a mortgage. My husband will be 50 next year and is the main breadwinner with a great paying job, but as a government contractor, his contracts are reviewed at times yearly. I have lupus and it has affected my eyes already. I only work part time and with two kids with special needs, that will likely not change. Regular therapies and adjunct therapies like swimming lessons and horseback riding, are expensive. Our oldest is 9 and grade accelerating in certain subjects and will probably start taking some college courses by age 16. We would hate for a layoff or illness to happen at the same time we’re managing big mortgage debt and worrying about college costs. We are putting extra towards our mortgage and hope to pay it off sooner rather than later so we know we can continue to have a safe,stable home and not have to worry about losing it if something major happened. Our particular circumstances are not usual, but are the reasons we are focusing on paying the mortgage off within 5-6 years if we can.
    Jen@FrugalSteppingStones recently posted…Feeding 5 For $150 Per Week: 1st Week of August 2017My Profile

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