Paying_Off_Your_Mortgage
00:00:00.000 | Hello, everybody, it's Sam and Sydney from the Financial Samurai podcast. And in this episode,
00:00:04.160 | we want to talk about how paying off your mortgage may not provide the joy you expect.
00:00:09.040 | Because I spent hours and hours writing about the top financial moves to make to relieve stress and
00:00:15.120 | anxiety. This is what we did over the past, well, a couple decades, actually, but more recently,
00:00:21.360 | since the pandemic, to help us alleviate stress because the past three plus years have been
00:00:27.600 | stressful. And one of the items that didn't get its specific bullet point was paying off your home.
00:00:34.720 | I did mention paying off your forever home as a paragraph as part of a sub bullet point,
00:00:42.480 | but it wasn't a dedicated bullet point paying off your home. And I wanted to discuss why this was,
00:00:48.320 | for those of you who are gazelle focused, extremely focused, laser focused on paying
00:00:53.200 | off your mortgage debt, ASAP, I think there's going to be a letdown, there's going to be a
00:00:59.520 | anti climactic moment once you send off your last mortgage payment. And it's really interesting,
00:01:06.080 | because after we had paid off our vacation property rental, I wrote a really bullish
00:01:12.320 | positive post called the triple benefits of paying off your mortgage early. And it did very,
00:01:17.360 | very well. A lot of people came out to support and comment, Google News picked it up, and it
00:01:22.560 | got spread all over the place. And it was interesting that I so quickly forgot that I
00:01:27.280 | had written that post. And so quickly, I forgot about the triple benefits of paying off the
00:01:32.480 | mortgage early, that I wanted to discuss more in this podcast why this was so. So Sydney,
00:01:38.880 | you were in charge of paying off the vacation property mortgage. So what were your thoughts?
00:01:44.000 | How did you feel once you finally paid it off? I felt great about it. And that joy has stayed
00:01:49.360 | with me. And I think one of the reasons why you kind of forgot about it is because we have a
00:01:54.400 | separation of tasks per se. This vacation property mortgage was more of my responsibility. You know,
00:02:01.440 | I deal with all of the management company issues, the guests, you know, when they have issues that
00:02:08.000 | come up, the maintenance, the fees and all of that, and the property taxes. So it's, I think
00:02:15.040 | it's stuck with me a lot longer, I still feel really proud and, and glad about it. And I do
00:02:20.400 | have less stress, there's, there's still the stress of dealing with the management company,
00:02:25.360 | there's always stuff that comes up. But I feel really great about having paid it off, I will say
00:02:31.600 | that I did. I did have a new unexpected stress. When I sent in the last payment was like, Oh,
00:02:38.480 | wait, what happens now? You know, what am I have to make sure I don't forget anything. So I had to
00:02:43.680 | remember to call in actually speak with someone to turn off the automatic payment, for example,
00:02:48.720 | because there wasn't an easy way to do that online, I had to actually speak with someone
00:02:53.200 | did we get the payoff letter? Yes. And that's the other thing I had to make sure that we would get
00:02:58.320 | everything you know, that we needed to to make it fully official. So that had a little bit of
00:03:04.880 | stress temporarily until all that was sorted out. And it doesn't happen immediately. Like,
00:03:10.240 | I had to wait a certain number of weeks for the paperwork to come back to me in the mail. I called
00:03:15.440 | the local assessor's office. Yes, assessor's. Yeah, just like make sure I was like, you know,
00:03:21.360 | this is what my lender is saying, can you please confirm just to get a little more comfort. And
00:03:26.000 | then once all that got taken care of, I felt so happy. Really? Okay, well, that's good. You know,
00:03:31.760 | it's interesting, because I wrote about mortgage mortgage payoff procedures to know, and it's not
00:03:37.200 | just okay, that's it, you've got to make sure your bank and you are on the same page. And you get that
00:03:42.320 | payoff letter amount. Yeah. And then it's recorded at the assessor's office that you paid it off,
00:03:46.160 | and you don't have that lien that the bank holds, right? You get the reconveyance letter,
00:03:51.600 | it might be a little bit different in every state. But yeah, conveyance letter. But I didn't forget,
00:03:56.320 | you said I forgot about I didn't forget, forget, but I feel like the emotional aspect, maybe
00:04:02.400 | I feel stronger, since I've kind of focused more on this, and you focus more on our primary house.
00:04:09.600 | So I don't think about that as often. As a result, when did we pay it off? Do you remember?
00:04:15.920 | I'm pretty sure it was July of 2022. And so here now, May 24, summertime 2023. Do you still feel
00:04:25.680 | good about it? Yeah, I won't say that I think about it every day. My mind is cluttered with
00:04:32.080 | all kinds of other different things that are on my to do list and whatnot. But if I stop and think
00:04:36.720 | about it, like we are in this discussion, I felt I felt really good about it. And it has reduced
00:04:42.000 | some of your stress and anxiety, because that was my main point. What are the financial moves
00:04:46.720 | to reduce your stress and anxiety? Yeah, because it's one less payment that I have to ensure goes
00:04:52.560 | out every month. I mean, most of the time things run smoothly with your bank, it's automatic. But
00:04:57.920 | you know, if by accident, I didn't, I wouldn't have enough funds in the bank account for that
00:05:04.480 | month. And it, you know, things could happen, right? So it's just one less thing to worry about.
00:05:09.520 | So less financial clutter. Yeah. Well, that's, that's good to know. And I think you're right,
00:05:15.600 | that because you were in charge of paying that mortgage. Yeah. And you know, paying the property
00:05:19.920 | tax and all that stuff. It's it was more beneficial to you, right? It alleviated you more,
00:05:25.280 | whereas I didn't really think about it as much, right. So the feedback we got from the commenters
00:05:31.440 | was was really great, which is one of the reasons the main reason why we want to do this episode,
00:05:35.920 | because it made me realize something very important. I did highlight five things as to why
00:05:44.080 | paying off your mortgage wasn't a big stress reliever for me. And let me just go through that
00:05:49.360 | quickly. And then I'll highlight an epiphany, not really an epiphany, but just a realization,
00:05:54.000 | thanks to the readers. So first of all, ongoing property taxes, we pay our property taxes twice a
00:05:58.800 | year, I mean, it's December 10, in April 10. And every time I have to pay the property tax,
00:06:04.240 | it's like, oh, that stinks, right? And we have built a rental property portfolio,
00:06:09.760 | real estate portfolio that is large enough where we have hit the limit in terms of our
00:06:14.320 | property tax annual payments. And we're talking six figures a year in property tax payments.
00:06:19.280 | And if you think about that, folks, you know, if you're going to pay 20,000 30,000 50,000 $100,000
00:06:25.200 | a year in property taxes, that doesn't feel good, especially when you start reading about corruption
00:06:31.520 | in your city, or inefficiencies. We've asked the city to do things before to fix things that would
00:06:38.000 | be good for society, the city, and they just won't fix it. And then you hear about stories about just,
00:06:44.800 | just bribing and all that stuff. It's just like, ah, you guys are killing me. And, and by paying
00:06:50.320 | property taxes, you're just kind of feeding the beast of inefficiency and corruption. Yeah. So
00:06:56.240 | number two is ongoing maintenance issues. Doesn't matter if you pay off your mortgage, you're still
00:07:01.440 | going to have to change the roof, change the HVAC unit, change the dishwasher. Yeah, you know, we
00:07:05.920 | bought our house in 2020. And since then, you know, our doorknob stopped working, though, that was
00:07:12.080 | easy. Try to replace the water heater, replace the water heater, change several rotten wood planks,
00:07:18.400 | we fixed a leak that went into the chimney when those like the once in a hundred year storm,
00:07:24.960 | what's going on. So there's always going to be things to do. And therefore there's always going
00:07:31.840 | to be stress involved. Yeah. Three, we're in a negative real mortgage interest rate environment.
00:07:38.640 | Inflation is still at about 5%. But I would say 95% of us have refinanced to below 5% or have
00:07:44.880 | mortgages below 5%. 40% of homeowners supposedly have no mortgage. Anyway, if you have a sub 5%
00:07:50.880 | mortgage right now, paying off your mortgage now is suboptimal. And it's fine to still pay it off
00:07:57.360 | because paying off debt is always a good thing, I think, in general. However, when you can now get
00:08:03.840 | risk-free 5% plus returns and our mortgage, our primary mortgage is 2.125% for another five years,
00:08:10.320 | four and a half years, it's like, no, it actually feels worse paying off your mortgage when it's
00:08:15.840 | so low, when you can get more than double risk-free return. Four, what else? Investing FOMO. That's a
00:08:23.920 | huge one. That's something that I experienced. You don't experience that, do you? Not really.
00:08:29.440 | You definitely do. I do because I'm in charge of the finances. And I've written before that
00:08:34.880 | investing is like a part-time job or it could be a full-time job. And we have over 40 financial
00:08:40.480 | accounts. You got to track everything. That's why we use Empower. It used to be called personal
00:08:45.840 | capital to track everything because it's like going to the grocery store. If you go to the
00:08:49.120 | grocery store and you don't have your grocery list, it's stressful. It takes much longer.
00:08:53.840 | Much longer. You're like, oh, what did I forget? And then you get everything, you go back home.
00:08:58.240 | You're like, oh, I forgot the eggs or whatever. I forgot the tomato sauce, whatever. I can't make
00:09:01.840 | the spaghetti no more. And so using an app like personal capital and power now is very helpful
00:09:08.800 | because it just alleviates that mental load. And so investing FOMO is tough, right? Because
00:09:15.360 | you want to stay disciplined in your asset allocation, investing, your goals. You know who
00:09:20.560 | you are. But in 2020, 2021, ridiculous things were booming and you're like, oh, pay down debt.
00:09:27.520 | But things could be booming. So every year there's some kind of hot new investment, right? And in
00:09:32.560 | 2023 and probably for years and years to come, it's going to be artificial intelligence. And I'm
00:09:37.920 | playing around chat, GBT. It's still like, eh, not that great, but it helps build structure.
00:09:42.800 | And it's kind of like a shortcut. And I'm looking for AI investments. I'm like, oh,
00:09:49.120 | AI investments that could be a hundred baggers, 10 baggers, or pay down your mortgage of 2.125%.
00:09:56.320 | Come on now. And then fifth and finally, the financial winds never really elevate your
00:10:01.360 | happiness for very long, at least for me, it's hedonic adaptation, right? We quickly revert
00:10:07.600 | back to our steady state of happiness after achieving any type of success, which is why
00:10:13.600 | I'm pleased to hear that since July of 2022, since paying off the mortgage, you still feel
00:10:20.160 | good about it because I've seen you on the couch when we're watching trash TV on Netflix,
00:10:24.640 | you dealing with, um, you know, the property manager, the property manager causes me headaches
00:10:29.840 | because they're not detailed. And I mean, if, if people are curious, we had, we had one company
00:10:37.200 | and it got so bad that I was like, we have, well, they weren't happy with us. We weren't happy with
00:10:42.400 | them. So we parted ways and we went with a different company that was working out so well
00:10:46.720 | for, I think it only ended up being about a year because they got acquired by the company that we
00:10:52.480 | had left. And I was like, Oh my gosh, are you kidding me? So we're back to square one. You know,
00:10:57.760 | there's so much employee turnover. I can never figure out who to contact because the person that
00:11:02.000 | I did last time is now gone. And you know, they didn't, they didn't do X, Y, and Z right on our
00:11:09.040 | invoices. And Oh, it's, it's always something. So this is my hesitant when people just hesitancy
00:11:15.040 | on hiring a property manager, people always ask me, well, Sam, why don't you just hire a property
00:11:19.040 | manager to manage your property? And I always think to myself, well, who's going to manage
00:11:21.840 | the property manager? Yeah. There's a lot of things they do that are helpful, but it's never
00:11:27.520 | a hundred percent smooth sailing. Something will always come up.
00:11:31.200 | Yeah. And I'm just wondering, can you maybe just chunk all the errors that they do for the whole
00:11:37.040 | year and then just submit the whole thing at once and say, pay us back? I mean, maybe, but
00:11:41.760 | I'd rather, I'd rather stay on top of it every month because I don't want to, I don't want to
00:11:49.040 | have money going out of our pocket that, I mean, who knows what, what if this company ends up being
00:11:53.360 | acquired and then it'd be even harder to get money back, you know? Right. So anyway, I don't know
00:11:58.160 | the property manager solution. You got to get lucky. Just kind of like, you're lucky to get
00:12:02.640 | a really trustworthy auto mechanic. Who's not going to rip you off or say you, you need $10,000
00:12:08.000 | worth of stuff done when you just need $500 worth of stuff done. So yeah, property managers,
00:12:14.480 | not the silver bullet, but in conclusion, thanks to reader feedback, I learned a couple of things
00:12:21.120 | about myself and this should help you as well. The first thing is paying off your mortgage
00:12:27.280 | is a more powerful stress relief. If that mortgage is your primary residence,
00:12:32.880 | and if you are paying it every single month, you are responsible for it. If you're responsible for
00:12:39.600 | it, it's your primary residence, you're enjoying it. Yes. Paying off the mortgage will feel
00:12:44.400 | more wonderful. If you're paying off a rental property mortgage,
00:12:48.640 | it's not as wonderful because it's just more like money, right? You pay it off, your cashflow goes
00:12:55.280 | up. You have one less thing to do, but it's just money and money itself provides only a certain
00:13:02.080 | amount of stress relief, but after a while, it just, it's not that big of a deal. And then the
00:13:07.120 | final realization I had is that the greater the value of the property is as a percentage of your
00:13:13.280 | net worth, the more stress relief it will provide. So for example, I'd say the typical American
00:13:20.560 | household has about 80% of their net worth tied up in their primary residence, which I think is
00:13:26.320 | a no-no. My recommendation is to get that down to about 30% or less. But if you have 80% of your
00:13:32.400 | net worth in your primary residence and you pay off your mortgage, you're going to feel really good.
00:13:37.440 | You're gonna be like, yes, 80% of my net worth is safer now. But if on the other hand, your property
00:13:44.160 | is worth, let's say 10% or 5% or a couple percent of your net worth, you're not going to feel that
00:13:50.880 | emotional victory as much. So we paid off our vacation property rental and that vacation property
00:13:57.600 | rental is worth less than 5% of our net worth. So in my mind, I just feel it's not that big of a
00:14:03.600 | deal. We paid off the last remaining mortgage amount was like 40 to $50,000 in 2022. That's
00:14:10.240 | a good amount, but it's not really going to move the needle. What are your thoughts about that?
00:14:14.640 | I think that makes sense. I mean, yeah, definitely. If you're paying off your primary residence,
00:14:20.800 | that is a huge bulk of your net worth. It feels more impactful. It makes a lot of sense.
00:14:26.800 | Makes a lot of sense. And also the duration. If you've been paying, let's say 25 years of
00:14:31.760 | your mortgage and you finally paid off, I think you're going to feel better than if you paid
00:14:36.880 | it off in three years. But you know what? Actually, I don't think so. Because I also concluded in my
00:14:41.520 | post, the harder you work for something, once you get that something, the more you kind of miss the
00:14:49.120 | goal. You might miss the goal or you might say, well, of course I should achieve this goal because
00:14:55.360 | I worked hard for it. I deserve it. I crushed it. The 25 years of pain and suffering and sacrifice.
00:15:00.880 | This is what I felt after writing "Buy This, Not That" and once it became a Wall Street Journal
00:15:06.960 | bestseller. After two and a half years of worrying, writing, editing, marketing,
00:15:11.680 | when I achieved that result, I was like, well, yeah, you're damn right I achieved that. I worked
00:15:18.240 | so hard for it. But the reality is less than 0.3% of nonfiction books ever make it on a national
00:15:24.000 | bestseller list. It's that competitive. And so what happens is our minds really, we justify
00:15:30.480 | our achievements because of our work ethic, duration and hard work. But we also forget,
00:15:36.080 | conveniently forget to put things in perspective. So I would say for all of us, try to put things
00:15:42.960 | more in perspective. Any of our accomplishments. Write them down. Write them down. Review them.
00:15:48.960 | Show gratitude. Ah, and there's also another way to think about the value of a financial move in
00:15:55.520 | terms of alleviating stress. And that is perpetual versus temporary or permanence versus temporary.
00:16:03.040 | For example, the greater the permanence of the financial move, the more it will relieve stress
00:16:07.600 | and anxiety. Let's say you got a revocable living trust or a death file that was in the right hands.
00:16:13.600 | You're going to feel good that there's a permanence involved until you die, that things will be taken
00:16:18.720 | care of if something were to happen. And so regarding paying off your house, well, if you
00:16:23.840 | live in your primary residence permanently, and you pay it off, I think you're going to go you'll
00:16:28.960 | feel you're going to feel better. But if you are a temporary holder of that property, and you plan
00:16:34.800 | to use it as investment or sell it within several years, paying it off and then selling and getting
00:16:39.840 | rid of it, it's it's not going to feel as great. And there's a there's a parallel to life insurance,
00:16:46.960 | because I said life insurance was something that gave me the most amount of stress relief. And that
00:16:52.080 | is term versus whole, we have a 20 year term policy. And I feel good about that. Because I
00:16:57.360 | think in 20 years, that our mortgages are all our debts will be paid off. And our children will be
00:17:03.520 | 23 and 26 years old. And they should have the wherewithal, the intelligence to take care of
00:17:10.480 | themselves and know right from wrong. So I feel good about that 20 year amount. But along the
00:17:15.280 | lines of permanence, maybe we should have got whole life insurance at around age 3035. So it
00:17:22.240 | will permanently cover us no matter what happens. Because in 20 years, maybe our kids won't have it
00:17:28.960 | together. Maybe they will be spoiled. Maybe they won't understand or maybe there'll be an accident,
00:17:33.440 | God forbid, right? So we just don't really know anything can happen. So it's good to think about
00:17:39.680 | permanence and temporary in terms of financial moves you want to make. At the end of the day,
00:17:46.080 | life is temporary, everything we own, and even our time is temporary, because we will all pass away
00:17:52.640 | one day. So let's make the most of every single day. Appreciate each other. Appreciate all your
00:17:57.440 | positive reviews and sharing of this episode and various podcasts. And please stay in touch.
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00:18:32.320 | Thanks so much, everyone.