I’m trying to think through something more behavioral than mathematical.
From a pure numbers standpoint, carrying a low-rate mortgage while investing the difference often makes sense. But I’m noticing that the idea of entering early retirement completely debt-free feels very different from entering it with a mortgage, even if the math favors investing.
For those who are closer to FI or already there:
Did paying off your mortgage materially change your sense of security?
Did it lower your FI number in practice, or just emotionally?
Would you make the same choice again?
Not asking about optimal return more about how debt affects flexibility and sleep once work becomes optional.
How much does paying off a mortgage change your FI number psychologically?
byu/Beneficial-Ad-9986 infinancialindependence
Posted by Beneficial-Ad-9986
6 Comments
Not RE yet, but FI. My wife and I have discussed this part of our life (still mid 30s) and our solution was to continue normal FIRE strategy and have term life insurance policies that will cover cost of home and then some. Our mind set was this decision was based off both of our current incomes and the term life policy is to ease the burden should something happen to one of us.
Depending on your interest rate, 5%+, and your taxable income during the year you RE, I would put a large payment in and recast your mortgage to reduce your taxable income burden post RE.
Peace of mind knowing both of us are taken care of in that kind of event, even if it’s not mathematically efficient feels good.
In the financial software I use (ActualBudget, like YNAB), I lost my assets, my liabilities and then that totals to my net worth. I focus only on net worth. And I’m proud of the debt because I understand why it’s there and how I’m using it to my advantage.
the math and psychology really do diverge here. carrying a low-rate mortgage while investing the difference makes spreadsheet sense, but the cognitive overhead of a fixed monthly obligation changes how you actually experience early retirement. you end up needing a larger practical buffer just to feel okay, even if the numbers say you are fine.
for a lot of people the peace of mind from zero fixed obligations is worth more than the theoretical return differential. it basically buys you permission to be more flexible elsewhere — spending, career experiments, or just not having a number you need to hit every month regardless of sequence-of-returns luck.
I’m REd with a mortgage and it doesn’t bother me at all. It’s relatively modest compared to my NW and my spend. No plans to pay it off early.
Fully owning our home has always been a goal of ours. It was a goal before we learned about FIRE. After learning about FIRE, we still prioritized it, even though financially it would have been better to keep the monthly payments and invest the difference. Several factors contributed to that decision.
1) Our original FIRE number was $1m and a paid off home, we wanted to make sure the house was paid off a few years before we FIRE’d to decrease fixed costs and increase cash flow for investing
2) We live in Canada, so don’t have 30 year fixed interest rates. One your term is over (varying from 1-5 years usually) you are at the mercy of the interest rates. We hated that uncertainty, so even though our rate was pretty low (2.94% and 3.39% for 5 years each) we didn’t want to worry about it later
3) Paying off the mortgage early was a “guaranteed” return of the interest saved. Of course the market did WAY better lol and we “only” saved $100k in interest, but yeah, still saved lol
4) It feels good to have the weight of debt off your shoulders. We sleep soundly at night and the bragging rights (although only close friends and family know anyway) of being mortgage free in a VHCOLA in your 30s feels pretty good
Knowing what I know now, I’d probably still prioritize the mortgage, but maybe a bit less and invest more. I definitely don’t regret paying it off early. We funnel all those extra payments into our investments now. If we had access to a 30 year fixed mortgage at sub 3% then I would definitely consider just going with the regular payments and investing instead depending on my FIRE number and total fixed costs.
Paying off my mortgage would lower my FI number by roughly a third. My projections have us hitting our base FI number by the end of this decade and my plan is to shift from investing towards mortgage paydown at that point. The idea being that you can reduce SORR by either having a bigger nest egg or lower fixed expenses. Today is about nest egg, tomorrow will be about lowering expenses (while my nest egg hopefully continues to grow).
That said, I don’t plan to have the mortgage fully paid off by retirement. That would take several years of focused paydown and I probably don’t have more than 2 in me. But if we had 2x-3x the remaining mortgage balance in our brokerage plus maybe a year of mortgage payments in cash, I’d feel pretty good about SORR even if everything went to hell for a while. My modeling says that’s feasible, but we’ll just have to see how everything shakes out. The more you sharpen your pencil, the quicker the tip breaks under stress.