A 31-year-old homeowner recently sparked debate on Reddit’s Bogleheads forum pay off their mortgage in just six years, only to be called a “dumbass” by their CPA uncle. The young homeowner, who had an interest rate of 3.375% on a 30-year mortgage, asked for advice on whether their decision was financially sound.
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“Paying off debt feels great and owning something like a house is a great feeling,” the homeowner wrote. “Did I waste too much money paying off my house so early and should I have put it into something like VOO? Am I in a better position where I can throw more now? money in my pension and investment account to invest now more than ever?
Community reaction was mixed. Many recognized the psychological benefits of being debt-free, while pointing out the potential opportunity costs.
One commenter noted: “Financially sub-optimal. Psychologically it could be excellent.” They added, “This guy has a paid-off house; they are absolutely killing it!”
Another user shared a personal perspective: “Because I always lived in fear of losing our home as a child, I also made it a priority to pay off my house as quickly as possible. Intellectually, I understand that I probably would have been better off investing that money. Psychologically speaking, the impact is indescribable.”
Some responses emphasized the freedom that comes with owning a home. “You’re free, my guy! Your finances are probably pretty easy these days. Your stress level should be quite low,” one user commented.
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However, others pointed out the potential financial disadvantages. One detailed analysis suggested: “Without knowing all your numbers, we can safely assume that this was a decision that will likely negatively hurt you at least a few hundred thousand dollars.”
Ultimately, the consensus seemed to be that while the decision may not have been optimal from a purely financial perspective, the peace of mind and flexibility it provided could outweigh the potential lost investment returns for some individuals.
As one commenter succinctly put it, “You did a great job. I’ve never heard of it people are mortgage free at the age of 31 since my grandparents walked this earth.
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There are financial consequences to paying off a mortgage in six years – some good and some bad.
Pros:
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Increased cash flow: With no monthly mortgage payment, the homeowner has more disposable income to invest, save or spend.
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Financial Security: Owning the home outright provides security and eliminates the risk of foreclosure.
Cons:
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Opportunity cost: The money used to pay off the mortgage could have earned a higher return if it had been invested in the stock market. For example, investing in an S&P 500 index fund has historically averaged a return of 9.8%, which could outperform mortgage rates of 3.375%.
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Tax consequences: The homeowner loses the mortgage interest deduction, which can lead to higher taxes.
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Reduced liquidity: Paying off the mortgage early frees up a significant amount of money that could have been used for other purposes or for emergencies.
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This article 31-year-old pays off mortgage in six years – but his CPA uncle calls it a foolish move: Who’s right? originally appeared on Benzinga.com
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