Mortgage-free: the pros and cons

If you looked at our spending for last year you noticed that we have no rent and no mortgage payments. We paid for our house in cash. We waited to buy our first house while living in very cheap shared housing (that was before we met and while dating) and our first house was small and cheap ($120K). A few years later we acquired the kids and moved into a much bigger house ($240K). We always lived way under our means and so we were able to pay cash.

Living mortgage-free is a priority for me because I tend to be anxious and knowing we can’t be foreclosed on (yes, I know we still have to pay our property taxes) is important for my peace of mind. And as the motto of this blog is to spend your money to optimize your happiness, paying off the house is the right decision for our family. However, security and peace of mind are probably the only pros for living mortgage-free.

There is a long list of cons:

  1. Unless you make significantly more than you spend, you won’t be able to buy a house for a while. This is an even bigger issue in parts of the country with high housing costs. In some parts of the country, even a “cheap” housing option can be over half a million.
  2. The kind of house you can buy will be much more limited than if you are willing to take on a mortgage.
  3. While renting to save enough cash for a house, you are spending money that is in no way increasing your net worth. There are many positives of renting but that will be a topic of another post.
  4. If you have the money, spending it on a house is probably not the best investment. Historically, mortgage rates have been below the rates of market growth. So even if you have the money, mathematically you may be better off taking a mortgage and investing your cash in the stock market. However, it is important to account for RISK. You know for sure you will have to pay the interest rate on your loan, you don’t know for sure what the market will do.

So, as with most decisions related to money, don’t make this decision to optimize the money, optimize your happiness. For us, living mortgage-free is the best decision but it might not work well for your family.

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