Personal debt is a topic that lends itself to many disagreements. There is the argument about “good” debt and “bad” debt, which is ridiculous since every debt is a burden. “Good” debt is akin to wearing your cleanest dirty shirt. If given the choice between inheriting a house that has “good” debt (a mortgage), or inheriting a house free and clear, no one would pick the house with “good” debt. Maybe it is not as “good” as people want to pretend it is.
Then there is the argument about whether to invest or pay down debt. This is a false argument since money is fungible. This argument is an attempt to disguise the fact we are using debt to boost our lifestyle and pretend it is to make more money. It would be equally correct for the same person to say they are going on an expensive vacation instead of paying down their debt. The vacation story doesn’t sound as “responsible” as the investment story, but they are in fact the same story. If you buy a luxury when you still have debt, you are using debt to live a higher lifestyle than you can afford.
(Are you interested in learning about financial freedom through real estate investing? Join me and several other speakers at the Physician Freedom Summit 2025, October 6-8, in Los Angeles.)
I understood the fungibility of money for the first time when I visited a friend who borrowed money from me several months earlier that he “couldn’t pay back yet.” Then he proudly showed me his new boat. Frankly, he bought that boat with my money, but he pretended he bought it with different money. He is using my money to buy a lifestyle he can’t afford, without my permission.
We paid off our house in 2001. I have never regretted that decision. If the above false arguments are making you feel uneasy about paying off your home, then here are twenty reasons you should make this great financial move. It’s time for you to own your lifestyle instead of living a borrowed one. An owned lifestyle can’t be repossessed.
1: It will pay for your kid’s college.
Rather than putting money into a college savings account, which comes with strings attached, we paid off our house. The house payment we used to make covered the cost of putting our two kids through college without borrowing any money.
2: It offers a great guaranteed return.
If you have already paid half of your mortgage, you are sitting on a great opportunity. Let’s say your principal and interest payments are $4,000 a month and you still owe $300,000 on the mortgage, then using $300,000 to pay off the mortgage will return $48,000 a year in cash flow. That is a 16% after tax guaranteed return.
3: You won’t have to earn so much money.
In #2 you have an extra $48,000 a year to spend. If your total income taxes come to 40% of your paycheck, that is the equivalent of an $80,000 raise. Or an $80,000 year-end bonus. Since eliminating your mortgage is a drop in expenses, you might be able to take one day off a week without changing your lifestyle.
4: You can retire sooner.
If you will be using the 4% rule on your investments once you retire, and you are getting close to retirement, you will now need $48,000 less after-tax income to retire. At 4%, you will NOT need the extra $1.2M in a Roth account to generate this $48,000 income to make the mortgage payment. If the income comes from a taxable account, like a 401(k), even more money will NOT need to be saved. However long it would have taken you to save that $1.2M, is how much sooner you can retire.
5: It lowers your risk.
Without a mortgage, no one can repossess your home. During the peak of the recent pandemic, many people’s income suddenly dropped. For them, life would have been a lot nicer without a mortgage.
6: Your practice can improve.
After paying off my mortgage, I had the courage to drop some procedures from my practice that I didn’t like doing, making my practice a lot more enjoyable.
7: The market can never make you upside down.
Many mortgage holders suddenly became upside down on their home when the values dropped in 2008. When you owe a lot more than the house is worth, trouble can ensue, especially if you need to move. With no mortgage on my home, the price drop in 2008 didn’t affect me.
8: It can cover healthcare costs in retirement.
It’s unbelievable how many people worry about the cost of healthcare during retirement, which might be $15,000 a year. But they don’t bat an eye about carrying a $48,000 a year mortgage into retirement. Paying off the house can eliminate the worry associated with healthcare costs.
9: You can meet your goal.
Eventually becoming debt free is a goal for many people. You can reach it now.
10: No more saying you are “Debt free except for the mortgage.”
I never understood this statement. Debt is binary; you either have debt or you don’t. The underlying assumption of this statement is that the mortgage is just a fact of life, so you only need to pay off all the other personal debt.
11: Debt free is a new bragging right.
Now that people realize it is better to be debt free, it is a new status symbol.
12: More peace of mind.
Debt can be a big worry for a lot of people. Debt free brings inner peace.
13: Reach other financial goals sooner.
Without debt payments to make, household expenses are drastically lower. This frees up a lot of cash flow to make other financial goals happen sooner.
14: No longer a slave.
Proverbs 22:7 states that the borrower is servant to the lender. If you don’t think this is true, skip a few house payments and see what happens.
15: You can stop the lifetime borrowing cycle.
Once you get out of the mode of living a lifestyle supported by borrowed money, you realize you never need to borrow again. The debt cycle ends. Debt is no longer acceptable or necessary.
16: Debt comes with other baggage.
There is more baggage trailing along with debt than what is on the spreadsheet. I didn’t realize this until after I paid off my last student loan and felt the burden lifted from my shoulders that I didn’t even know I was carrying.
17: No more banking headaches.
I always hated the huge paperwork nightmare that accompanied refinancing a home. It takes quite a bit of time to gather all the information the bank requests. If you have a mortgage, it is likely that you will eventually refinance it and go through this headache again.
18: Lower insurance expenses.
When you don’t have a mortgage payment, you need less life insurance to cover your monthly expenses, less disability insurance to make the monthly payments if you can’t, and no mortgage insurance that you probably forgot to cancel when the loan to value became less than 80%.
19: Kids learn a valuable lesson.
Kids tend to follow in their parents’ footsteps. Our family has a pattern of paying off their homes. In both my and my wife’s families, our grandparents, parents, siblings, and kids all live or lived in homes without a mortgage.
20: No one goes back once they get there.
The best evidence of a paid off mortgage being a great thing is that people who pay off their homes do not change their mind and get another mortgage after becoming debt free. Those who have lived both ways, with and without a mortgage, very rarely choose to take on another mortgage. Those who support having a mortgage do not have first-hand experience of what life is like without one. They are working from a theory they read or calculations on a spreadsheet.
There are lots more good reasons to pay off your home and become debt free, but I’ll stop here. If twenty is not enough to convince you, then 100 won’t be enough either. If you are still feeling unsure, pick up a copy of my book The Doctors Guide to Eliminating Debt and see if some of the other reasons make better sense to you. Sometimes though, if your Debtabetic Neuropathy is too great, only an amputation will help. I hope I got to you before that was necessary.
