Why You Shouldn’t Pay Off Your Mortgage

Andy Snyder|July 13, 2023

Be debt-free!

That’s the mantra. It’s shouted on the radio… and hailed from the halls of money managers. And it’s the backbone ideology of so many self-help gurus.

Why is it, then, that the world’s best and most successful companies have piles of debt?

Apple has $97 billion worth of long-term debt. Mr. Conservative himself, Warren Buffett, has $124 billion of outstanding obligations at Berkshire Hathaway. And Amazon owes its creditors more than $67 billion.

Debt is so ubiquitous in the business world that it’s frowned upon not to have a pile of it. It’s actually unattractive to investors for a company not to have any long-term debt.

Why is it, then, that the you-know-whos of the world scream about being debt-free?

It’s pretty simple.

They think you’re an idiot.

They think mediocrity is just fine for you… that you aren’t capable of optimizing your finances… and that you’ll go out and buy a floating palace with your loans.

For some folks, it’s true.

There are plenty of idiots out there.

But in the words of Johnny Cash (or was it Bob Dylan?)… it ain’t me, babe. And I bet it’s not you, either.

Forget It

For years, we’ve been telling folks to forget about paying off their mortgages early. With interest rates at record lows, your money would be treated much better somewhere else.

Why plunk $250,000 into your land to save 3.5% yearly when stocks are returning double digits?

Putting that cash into your house is the equivalent of burying it 20 feet deep. You’re not getting it back without incurring a major expense.

Imagine paying off your 3.5% mortgage two years ago… and now needing that cash for something else. The home equity loan it would require to tap into those funds would come with a rate north of 8%.

Ouch.

Your money did nothing for years (and you lost a nice tax deduction)… and now it would cost you more than twice as much as you saved if you needed to tap into it.

For those who have all they need and want nothing more, paying off a low-rate mortgage may make sense. For the rest of the world… nope. Not for the last decade, at least.

But what about now?

Does the same logic apply now that rates have doubled?

As the bumper sticker on the back of Jay Powell’s Buick surely cries… “No New Loans.”

Now is not the time to be taking out a fresh mortgage. The Fed raised rates to curb borrowing, which slows spending, which cuts inflation.

This is exactly the time you need that big cash stockpile we told you not to dump into your mortgage.

A Free Mortgage

With just a bit of searching, you can find a high-yield savings account that will pay more than your mortgage is costing you.

Newly created Bask Bank offers 4.85% annually. Salem Five offers 5%. Or, if you’re looking for something from the big boys, Marcus by Goldman Sachs offers 4.15%.

These aren’t CDs or something else that locks up your money. There are no penalties for early withdrawals, no waiting periods… nothing like that.

It’s an ideal opportunity. You can earn more than your mortgage is costing you from something that’s entirely outside the stock market… and entirely risk-free.

Put the money you’d toss at your mortgage into a savings account, and suddenly your mortgage is free… plus you have ready (and free) access to your cash.

Yeah, there’s peace of mind in not having that bank note hanging over your head.

But it comes with a hefty price.

That cash can certainly do a whole lot more for you elsewhere… especially these days.

A mortgage rate of 3.5% may never come again in our lifetimes. Don’t be in a hurry to get rid of it.

You’re not an idiot.