Most people believe that paying off your mortgage early is the ultimate goal for financial peace—less debt, less worry, and less interest paid over time.
But what if I told you that rushing to pay off your mortgage could actually be a mistake, one that limits your potential and increases your risk?
In reality, holding onto a mortgage can be a smarter, safer financial move.
From keeping liquidity in your hands to making inflation work for you, there are several reasons why not paying off your mortgage makes more sense.
Let’s dive into why hanging onto that mortgage might be the best financial decision you can make.
Why Keeping a Mortgage Makes Sense
There are several compelling reasons why keeping a mortgage can be a smarter financial decision.
Whether it’s about maintaining liquidity, leveraging inflation, or making better investment returns, keeping a mortgage offers advantages that paying it off simply doesn’t.
Let’s dive into each one.
You Do Not Sleep Well At Night With A Paid Off Mortgage
Contrary to popular belief, having a paid-off mortgage doesn’t guarantee peace of mind—it can actually do the opposite.
With a paid-off home, you’re shouldering all the risk.
If a natural disaster hits, it’s just you versus the insurance company, and trust me, that’s not a battle you want to fight alone.
But when the bank still has skin in the game, they’ve got a vested interest in making sure the property is protected. Suddenly, it’s not just you—they’re on your side, fighting for their own stake.
And what if property values plummet?
If your home ends up underwater, having a mortgage means the bank shares that risk.
You have the option to walk away if things really go south. But if all your money is tied up in that house, walking away isn’t an option—you’re stuck holding the bag.
Keeping the bank involved gives you flexibility, and flexibility is what helps you sleep better at night, not the illusion of safety from owning the home outright.
In fact, this reminds me of a tweet I posted recently, showing my current mortgage balance with a low interest rate.
The responses were flooded with people saying they would pay it off for the peace of mind, to feel the freedom of being debt-free.
What incentive do I have to pay this off early? pic.twitter.com/TjhgUJ0U1L
— Travis Biziorek (@TravisBiziorek) September 29, 2024
The reality is, that so-called peace of mind can be a false sense of safety.
If you’re hit by unexpected challenges—whether it’s a market downturn or a personal financial setback—having the bank as a partner in the property spreads out the risk.
You don’t have to face everything alone, and that shared responsibility can bring real peace of mind.
Paying Off Your Mortgage Kills Your Liquidity
Speaking of flexibility, paying off your mortgage ties up a huge chunk of your wealth in an illiquid asset.
Once you pour that extra cash into your mortgage, it’s locked up in the walls of your house—good luck getting it back out without selling or refinancing.
And in a financial pinch, that could be a real problem.
Liquidity is king. Life happens. Opportunities pop up. Emergencies strike.
If all your money is tied up in your house, you can’t easily pivot.
But if you keep that cash in liquid investments, you’ve got options. You can jump on a great investment deal, cover unexpected expenses, or just sleep better at night knowing you have access to your money when you need it.
And don’t think a HELOC (Home Equity Line of Credit) is a guaranteed safety net either.
Banks can and will pull those lines of credit in tough economic times.
You think having a paid-off house will help you sleep better, but having no liquidity when life throws you a curveball is a surefire way to lose sleep.
Fixed-Rate Long-Term Debt Is An Asset
Fixed-rate long-term mortgage debt isn’t just something to tolerate—it’s an asset.
Why?
Because inflation is your best friend here.
Over time, inflation erodes the real value of your debt.
Thirty years from now, the dollars you’re using to pay your mortgage will be worth far less than they are today.
Your mortgage payment stays the same, but everything else—your income, rents, the cost of living—goes up.
Imagine having a fixed payment today that feels like a drop in the bucket in thirty years. That’s the beauty of fixed-rate long-term debt.
Think about it: let’s say your mortgage payment is $1,000 today. In thirty years, due to inflation, that $1,000 might feel more like $400 in today’s dollars.
Meanwhile, the value of your property has likely gone up, your income has increased, and your debt has effectively shrunk. Holding onto fixed-rate debt isn’t just tolerable—it’s a winning strategy.
Here’s one of my favorite images that depicts the errosion of the US dollar’s purchasing power:
People fixate on the amount of interest they’ll pay over the life of the mortgage, but that’s focusing on the wrong metric.
Sure, you’ll pay interest, but those payments are made with future dollars that are worth less.
The real metric to consider is what that debt enables you to do—maintain liquidity, invest elsewhere, and capitalize on opportunities that provide far greater returns than the interest you’re paying.
You Can Make Better Returns By Not Paying Off Your Mortgage
Mortgage rates are often lower than the returns you can get elsewhere. Historically, the S&P 500 has averaged about 10% annual returns over the long term.
If your mortgage is locked in at 3-4%, you could be earning significantly more by investing in stocks, real estate, or other assets with higher potential returns.
Even if your mortgage rate is 7%, the S&P 500’s historical average still makes investing more attractive.
The difference between a 10% return and a 7% mortgage rate can add up significantly over time—and that’s assuming you have a higher mortgage rate to begin with.
In most cases, your mortgage rate will be lower, making the math even more compelling.
Instead of putting all your extra cash toward paying off a low-interest mortgage, it makes more sense to invest that money and potentially earn a higher return.
Plus, keeping your money invested keeps you liquid—ready to take on opportunities or deal with emergencies as they arise.
Conclusion
Paying off your mortgage may give you a sense of peace, but it’s often a false sense of security.
When you pay off your mortgage, you’re the one shouldering all the risk.
You lose the bank as a partner, you lose your liquidity, and you lose the ability to leverage fixed-rate debt to your advantage.
For those of us focused on financial freedom and building wealth, using that money for investments instead can be a game-changer.
It’s not about being debt-free; it’s about being financially smart and making your money work harder for you.
Think about your own goals—would you rather feel safe today or build substantial wealth for tomorrow?
Sometimes, holding onto your mortgage and investing those extra dollars is the real power move.