Why You Should Not Pay Off Your Mortgage

One of the most common money questions I get asked is some version of this. Should I pay off my debt or should I invest? Now, a woman literally asked me that at an event just a week ago. $400,000 on a mortgage and she wanted it gone. And when I asked her why, she didn't give me a number. She told me about 2008. Her husband was in real estate. They lived through it. The debt has scared her ever since. That's the thing. I told her not to pay it off because the answer to that question was never one or the other. It was, you need to do both. You just never do them equally. And almost nobody teaches you the second half of that. So I'm going to. This is Building Your Money Machine, where we help you master your money, eliminate financial stress so you can live a life of choice. And I'm your host, Mel Abraham. And listen, I've got a mortgage myself. I could pay it off tomorrow, and I'm choosing not to for reasons that have nothing to do with being comfortable with debt. Because trust me, I don't like debt either. So let's figure this out. Let's do this. So let's answer the question you came here for, and then let's answer the bigger one sitting underneath it, because the mortgage is what everybody argues about, and it's almost never where this decision should start. The deal is this. I was at an event, like I said, just a little while back, and during a break, a woman came up to me with a question. And I could tell before she even finished asking that it wasn't a math question. She and her husband have a mortgage just over $400,000, and she wanted to start taking every dollar they had and they could throw it at the mortgage to get it paid off, to get it gone. So I asked her, you know, why? And she didn't mention the interest rate. She didn't quote me a return. She just said it stresses her out. She said she just doesn't like debt. Now I get it because I don't like debt either. And then she told me the real story. 2008. Her husband was in real estate, still is. They lived through it. Not the version you read about later in the book, the version where you're standing inside of it watching things just come apart in real time at the seams. Ever since then, debt scares her. It annoys her. It scares her. I get it because it scares me. That woman isn't irrational. Her nervous system learned something in a very expensive classroom and it never unlearns. Now, this is where I wanna be careful with you because the next part is where a lot of people get it wrong. They stay wrong for the next 20 years. What went wrong in 2008 was the structure of the debt, not necessarily the debt itself. Now, there was a whole host of other things, but people were overencumbered. They were able to get loans with no income. They had properties that were overvalued. They were overextended. And the whole thing was balanced on an assumption that the values will only move one direction, and that is up. And when that assumption cracked and incomes fell and rents fell, the structure cracked with it. The debt was just the thing left standing there when somebody finally turned the lights on. So the debt took the blame because here's what nobody teaches you. There is productive debt and there's destructive debt. I'm not one of, of those people that says all debt's the devil, but productive debt and destructive, they're not cousins. They're not even from the same family. Productive debt puts something on the other side of the ledger. It increases your cash flow or it increases your wealth over time. If it's used strategically, not overextended like it was in 2008, not overencumbered, it can be a tool that works for you. I like strategically used productive debt. But destructive debt? Destructive debt buys you a lifestyle. It funds the thing you couldn't pay for out of your pocket, out of what you earn. And there is no asset on the other side. There's no cash flow, nothing coming back to you. There's just a payment. And a slow leak. That's the thing. And then there's a third category that I think almost nobody names. And it's the one that took her house down in 2008. Productive debt done wrong. Right instrument, terrible structure. Too much of it stacked too high on values that were never real. And if we don't understand that distinction, then every dollar of debt starts to feel identical. It all gets the same label and the same fear, the same reaction. That's the game, which is how a person with a 2.75% mortgage ends up attacking it with the same energy she uses on credit cards charging 22%, 24%, 29%. Same weapon, wildly different enemy. See, and knowing the difference is step one. It doesn't make the feeling go away though. So let's talk about the feeling because it's real and it isn't going anywhere. The thing that we need to understand is that all debt, productive or destructive, has 2 characteristics, and it will carry it no matter what you label it. And the first characteristic is that all debt costs. You pay interest on it. That's simple math, and nobody can argue with that. But the second, the second characteristic is that it all stresses. It weighs on you. It sits on you psychologically, and it sits on you financially because there's a payment due, whether Whether or not the month cooperated or not. And that weight shows up regardless of which category the debt lives in. Productive weighs on you, destructive weighs on you. Good debt still wakes you up at 3:00 AM. And that's what she was feeling when she walked up to me. That was what she was feeling. And I understood it completely because I feel the same thing. I feel the same thing. I have a mortgage just over $1 million, and there are mornings where my gut tells me, write the check and be done with it and go feel light for the rest of my life. So this next part isn't me lecturing you from some place of financial zen where debt doesn't bother me. It bothers me. It bothers me a lot. And I want to be debt-free, and I will be debt-free at some point. I look forward to it, frankly. Here's what I did instead of obeying the feeling. I let the data define the decision. The emotion gets a seat at the table. It doesn't get the pen. That's the game. And that's the distinction worth sitting with for a second, because most people do one of two things with financial emotion. They either pretend they don't have it, which never works, or they hand it the checkbook, which works even less. So you're allowed to hate debt and still keep a mortgage. Those two things can live together fine. So what I told her was this, let's do the math behind it right now. Not to talk her out of her feeling, but to give her something else in the room with it. Because when you're running the mortgage forward 10 years, 20 years, and you look at what the same money does over that same window in 2 different places, the picture changes. The feeling doesn't disappear. Trust me, it doesn't. It just stops being the only voice in the room. And when emotions go up, financial intellect frankly goes down. That's true when the market drops, and it's just as true at the kitchen table on a Tuesday night when you're looking at that mortgage statement in front of you. Now, none of this means that debt gets a free pass. Destructive debt has no business in your life. If you are sitting back and carrying balances on a credit card, or you're using credit cards to finance a lifestyle you can't afford, then you need a real plan to kill it. And I wanna give it to you. I wanna make it easy for you. I have a debt breakthrough calculator that builds the map out for you to pay off your destructive debt. In real numbers, go to melabraham.com/nodebt. It is totally free and you will get in there, put your debt in there, put the payments in there, choose a process of whether it's avalanche or snowball, get yourself out of it because there's no place for it in your life. All right, here's the thing. Why do I say this? When I say you have extra $1,000, I don't want you putting it all towards debt. Most advice is gonna tell you to put all the $1,000 against the debt. And I get it, every dollar until the debt is dead, until it's gone. And then you can, you can start thinking about your future. I understand that. And mathematically, it makes sense. But if I had an extra $1,000, I'd tell you to put $900 against the debt and maybe $100 towards building something or whatever those percentages are. Those aren't hard and fast rules. But I know what that sounds like. It sounds like I just made your debt payoff slower for basically no reason. Because $100 isn't going towards anything. It's certainly not gonna build a fortune. But let me tell you what that $100 is really doing. Debt elimination and wealth creation are 2 completely different muscle groups. They use different mindsets. They require different behaviors. They involve different conversations, different questions, different decisions. Getting out of debt is a subtraction game. You're cutting, you're tightening, you're defending, you're closing all the gaps. Building wealth That's an addition game. You're allocating, you're choosing, you're holding through discomfort. You're thinking in decades instead of due dates. Those 2 things feel nothing alike. And being excellent at one of them doesn't make you competent at the other. That's the challenge. So watch what happens with the all-in approach. You put every dollar towards the debt. 2 years go by, maybe 5 years, maybe 7 years go by and you get there. The debt hits zero. It's a real accomplishment and you should be proud of it if you're there. But you arrive at zero with 7 years of reps in subtraction and zero reps in addition. You've built one muscle to the point where it's genuinely strong and the other one has never been asked to do anything at all. And now at that exact moment when you finally have money to deploy, you're a beginner. You don't have the habit, you don't have the behaviors, you don't have the knowledge, you don't have the skill, you don't even have the account open. You never sat through a down quarter with your money in the market. You don't know what your risk tolerance actually is because you never had anything at risk. Zero's a great place to pass through. I, yeah, I get it, but nobody builds a life standing there. So does splitting extend how long you carry the debt? Yes, it does. And I'm not gonna pretend otherwise. And, and how much longer depends entirely on the mix of the debt and the interest rate. That's exactly why the majority of the money still goes at the debt. 90%, 95%, whatever it is, whatever the number is that lets you sleep. The ratio is yours to decide because you're the one living it. But doing both at once is the part that isn't optional. Now, I already know the objection because I'd raised it myself, and I'm sure I'm going to get comments about it. If somebody's carrying credit card debt at 22%, the math screams to put every single dollar at that card. 22% guaranteed beats Anything I can promise you in the market. And on the math, it's totally right. I'm not gonna argue a calculator. Behaviorally though, that's precisely where it falls apart. Because wait until you're debt-free quietly becomes wait until you're ready. And ready never shows up on a calendar. You'd be optimizing the interest and losing the years. And years are the only thing in this whole equation that you can't Buy back later. So let me say something about the people who preach the hard line, because I, I think they get an unfair shake from folks like me. If you are deep in a hole, and I mean genuinely buried, that absolutism is probably exactly what you need. There's no room for nuance when you're drowning. You need the oxygen. Cut it all up, attack it with everything, follow the plan, don't negotiate with yourself. That discipline has changed a lot of lives, and I'm not gonna take— be taking a swing at it at all. What it doesn't do is build the second muscle. It gets you out of the hole and hands you a shovel you've mastered and a set of tools that you've never touched. Getting out of the hole is the first job. It's never the only one. So this does not mean that you can't do it. Say somebody has a mortgage at 3% and they've got cash sitting there and they write the check The mortgage is gone for about 6 months. That feels incredible because this was the thing that I was wrestling with. Assume that you actually have the money to pay off the mortgage early, which they could. No payment, no balance, no weight. I understand the appeal to that completely. That's what I was thinking of doing. Then life does something that life does. Business hits a slow stretch. Somebody gets sick. Parent needs help. The roof picks that year to quit. And the money is in the walls all around you. You can't spend a kitchen. Your equity doesn't cover the hospital bill or the payroll gap or 6 months of runway. And, and the appreciation is not a checking account. And I get it. You might say, oh, I can get a HELOC and I can get all these things. You can maybe, but if the times are tough, HELOCs aren't going to be easy to get. You own more house than you did last year. Yes. And you have less ability to handle your life than you did last year when you do that. And there are exactly 2 ways to get money back out of a house. You sell it or you borrow against it. Both of those happen on somebody else's terms, somebody else's timeline. If you borrow it back, you're borrowing at whatever rate exists that year, not the one you gave up. And in this case, in this example, in my case, the rate is extremely low. So now all of a sudden you traded a 3% rate for a 7% rate. And you did it at the worst possible moment, which is the moment you needed the money. And it assumes that they'll even lend it to you. See, nobody plans for this part. Borrowing against your home requires you to qualify, and qualifying requires income. And if you're retired or between things or the business had a rough year, banks are going to look at this person with an enormous amount of equity and paid-off house and tell them no, quite possibly. That's the position I don't want you in. Debt-free on paper and stuck in reality. See, liquidity is what buys you options, and options are what let you make decisions from a calm place instead of a desperate one. And the whole reason we build any of this is so that when life comes at you, you get to respond instead of react. That's the thing. Let me tell you where I sit. Since I'm asking you to consider this, I need to tell— I want to be transparent. My mortgage, like I said, is over $1 million. The rate is right around 3%. I could write a check tomorrow and be done with it, but I'm not going to. See, that money's invested and it's working at a rate that's multiples of what the mortgage costs me. So every year I keep the mortgage, the spread for what I'm paying and what the capital is producing lands on my side of the table. Now, do I get the tax write-off out of it? Yeah, I do. But that's a nice byproduct. It's not the reason. And at the same time, the market goes up and down. So there may be times where I go, oh, I should have, you know, If I compare it to the mortgage. But that's not the thing. We're looking at this long term. And before anyone assumes that this is one of those situations where the finance guy made a decision and informed his spouse afterwards, let me tell you something. If you have a spouse, you make sure that you're all on the same page. Stephanie is fully in this with me. She understands the math. She understands the emotion. We've had the conversation, we've worked through it, and it is part of the plan. We don't look at it every month. Because it's been decided. And here's the reframe that I gave the woman at the event. It's the one I want you to leave with. Having the ability to pay off your debt and having it paid off are almost the same thing. I can end that mortgage any day I choose. That optionality is real, and it's a form of security that a paid-off house can't give me because paid-off house can't be turned back into anything without a buyer or a lender. And I've chosen not to for now because the rate and because of the returns that I'm getting, and because it's part of a plan that we actually wrote down, that we tested, we stress tested. Now let's get practical because I know what you came here for. And I'm not freelancing here. I'm not just spitballing. Fidelity studied this exact question and came out with what they call the rule of 6%. Debt above 6%, pay it down before you put more dollars towards retirement. Below 6%, invest instead. Now, I'm close to that. My line sits nearer to 7% because their number assumes a portfolio that's about half stocks. Well, 50% stocks is a very conservative portfolio for most people that I work with. A longer runway, more aggressive allocation should support carrying slightly more expensive debt than the threshold. But the part I want you to catch is sitting in their assumptions. When you look at it on the surface, you don't see it, but their rule only kicks in after you've got the emergency savings in place, after you've captured your full employer match, and after the credit cards are gone. That middle one is investing. Their own research assumes you're investing while you're still paying down debt. So below the mid-5s, I'm not paying off my mortgage early, not while Well, there are better uses for that dollar. The math doesn't support it, and the flexibility argument doesn't either. So once you're up around 7 or higher, the conversation changes, and that's where I'd start looking at it seriously. Even then, my answer usually isn't to annihilate it in one move with one giant check. It's to accelerate it. Extra payments structured from cash flow while your investing continues and your reserves Stay intact. And underneath all of that, one rule holds no matter what your rate is. Other debt outranks your mortgage every time. If you have destructive debt sitting on your balance sheet, a double-digit interest rate, your mortgage is not the fight. It's not even close to the fight. Get the expensive, nonproductive debt out of your life first on a real plan with a real method, whether that's avalanche or snowball, get it done. There's an order to all of this and the order isn't arbitrary. It's the reason my clients don't touch their mortgage And accelerate the mortgage until the wealth-building side is genuinely being funded fully. That's the way the wealth priority ladder was built. That's the whole conversation that we need to think about for another day. But understand that there is a sequence to doing work and getting it to work for you when you can't see it. So I don't know how that woman's story ends. Her husband wasn't there. And so she was going to go take all of this home. And have a conversation with them. She told me she got it. She said it in a way that made me believe her, and I invited her to come back anytime she wanted to kind of talk through it further. So maybe she runs the numbers and she keeps the mortgage. Maybe she pays it off anyways because that's what lets her sleep. And honestly, if she does that with her eyes open, having seen the whole picture, I can live with that. But her plan didn't change that day. Her relationship with fear did, though. She walked up believing her instinct was the enemy, that wanting the debt gone was some flaw in her thinking that she needed to override. But she walked away understanding that the feeling was legit. Ernie honestly got it earned in 2008 that it was completely trustworthy as a signal. It just never qualified to be the decision maker. And that's the shift. You don't have to stop hating debt. Frankly, never did. You just got to stop letting a feeling from your worst financial year make the call on your best financial decade, because the goal is a life where your money shows up whether you do or not, where you can absorb what comes without costing you your future, where your choices in front of you are yours. A zero balance is just one line on a page. Look at your rate. Look at what dollar could be doing elsewhere. Train both muscles. Keep your liquidity because liquidity is optionality, and optionality is what freedom actually feels like on a random Tuesday when something goes sideways. Here's the deal. Each person's situation is unique. Each person's situation is going to require analysis. So there isn't one size fits all. But now you have a perspective, and hopefully it's a new perspective. Hopefully it's opened your eyes to look at debt and everything in a different way. And I hope that you'll take that And restructure what you're doing if you're in that space. Destructive debt is no place in your life. Let's get it out. Productive debt, let's do it strategically. Don't overextend yourself and do it right. And let's make sure that you're working both muscle groups on the way. All right, I hope that this helps. I hope that you found it valuable, and I hope that this hit home a little bit. And if it did, do me a favor. I love having conversations with y'all, so ping me, send me a DM. Leave a comment. Let me know. And while you're there, subscribe and maybe send this to a friend who's struggling with debt so they can take care of it. All right. Till I get a chance to see you on your journey or on your path to financial freedom, as I always say, always, always strive to live a life that outlives you. See you in the next one. Cheers for now. And that's it for this episode of Building Your Money Machine, where we help you learn how to master your money, eliminate financial stress, stress and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you'd do me a favor, go to Apple Podcasts or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people, because I truly believe that financial freedom's your birthright, and I want to help each and every one of you claim it. Thanks so much.