In our core piece How To Pay Off Your Mortgage Faster, we outlined the top, most useful things you can do with your money to get a fully paid off house. Some say you should be investing that money instead and there’s certainly benefits to that too which we also covered in Should I Pay Off My Mortgage? But there are a number of excellent benefits of a paid off house, so let’s investigate.
Table of Contents
Increases Tolerance To Life Shocks
It’s no shock to anyone that the world is becoming more volatile. As technology increases the pace at which the world moves, everything increases around it. Companies like Facebook and Apple can surge out of nowhere to become trillion dollar behemoths. On the flip side though huge companies and even entire industries can flicker out in the blink of an eye.
Kodak. Nokia. Peabody Coal. Once huge, astonishingly profitable companies have all since gone bankrupt. Their employees thrown to the curb with very little notice historically speaking. Add to this that if you’re really unlucky it might not just be your job that you lose… but your entire industry or profession.
Loosing ones job isn’t the only type of life shock you could suffer either. A death of a family member. A serious accident that puts you out for many weeks or months. A car accident, random law suit, ongoing and high medical costs or many others are possible and common.
We haven’t even approached the subject of financial crisis’s, pandemics, inflation or war either.
All these things can result in huge shocks to your otherwise everyday life and although financial stability doesn’t completely solve everything, having a fully paid off house, zero debt and a good emergency fund in the bank makes them all vastly easier to deal with.
I know all of the above is very negative and depressing. No one wants to think about a loved one dying in a horrific car accident. But it does still happen. A lot. If you want to lead a happy and successful life for your entire life you need to be prepared and able to take significant life shocks that will occur to you over the years. One of the most important benefits of a paid off house is that it increases tolerance to life shocks
Promotes A Healthier, Relaxing Life
Over the past few decades stress has emerged as being an incredibly serious health risk for many. Chronic, long term stress, even in small amounts, can add up just like smoking one cigarette a day can. Whether it’s stress about what would happen financially if you lost your job or just general stress in juggling money or life activities one of the other top benefits of a paid off house is less stress overall.
This lower stress not only helps with your long term health, but also significantly helps fend off one of the biggest threats to a stable family life which is the potential for divorce. According to multiple sources, the estimated divorce rate for first time marriages between people aged 15-44 ranges from as low as 29% all the way up to 50%. Those are not good odds!!
Financial trouble is the second most common reason for marital divorce, so having less financial pressure could legitimately save your marriage one day. Now I fully understand that sometimes people do simply grow apart or aren’t right for each other regardless of money or time. But the results don’t lie, money (or lack thereof) is a hugely important factor in relationships.
How you handle it, whether you’re in debt, whether you’re spending more than you earn. They all can greatly increase stress and lead to endless arguments about money. Eventually this ongoing problem takes its toll and while it might not be the direct cause of divorce, it essentially adds to the pain.
If you’re fully debt free, have a huge amount of income available to invest and live off because you have no mortgage repayments then your life is much easier. Stress is reduced. Arguments over money essentially don’t exist or aren’t super serious. This means that when a real, proper relationship issue breaks out (and one will at some point) you are much better positioned to take that “shock”.
Just like a financial shock where you may lose your job, a relationship shock benefits from your finances being rock solid and steady. It’s not immediately obvious, but one of the key benefits of a paid off house is that it can often save you enormous amounts of money due to avoided problems like divorce or anxiety / depression / digestive problems / heart attacks induced by chronic stress.
You will also have more money and time to commit to healthier foods and more exercise such as sports or gym memberships which all greatly add to an overall better quality of life. The benefits for health and relaxation improvements is truly huge and quite often very much under appreciated.
Increases Cash Flow
For a loan of $400,000 at 3%, paid over 30 years the repayment amount is $779 per fortnight or $1,687 per month. Here in Australia it’s absolutely common for even First Home Buyers to have loans for $500,000 or more meaning we’re now talking about payments of $2,109 per month!
I’m sure I don’t need to tell you what the benefits of having an extra $1,500-$2,000+ per month, every month available are. You can pay off other debts, repair things around the house that need it, buy better quality things that last longer for yourself and family, get more healthy food and so much more. You can save up an emergency fund quickly that contributes even more to protecting you against life shocks or just treat yourself to something special a bit more often.
While some people might not use this benefit of paying off your house well – they’ll buy a jet ski or luxury car – many will. They’ll reinvest this back in themselves by taking a new course to increase their qualifications. They’ll start a new e-comm business so they get more diverse income sources. They’ll invest it an investment property or any number of other ways.
Regardless of what you use it for, increased cash flow will help with many things from increasing your net worth to paying for Christmas gifts.
On the flip side of increasing cash flow, one of the more underrated benefits of a paid off house is that it can decrease expenses. Obviously it decreases your overall living expenses by you no longer having an Automatic, Extra Mortgage Payment each month (a huge win!), but it goes further than that.
With the increased cash flow you can pay off credit card or student debts quicker which not only saves you in interest, but will eventually wipe out that debt payment too, decreasing expenses further. As another very simple example if you fix that odd noise in your car engine quickly (as you have the money to do so) it will quite likely stop your entire engine breaking down and needing a much more expensive repair if you had avoided it (or couldn’t afford it).
This is true of everything in life from your car to the house appliances to a marriage as covered above. Beyond this you might find that having extra money can help free up your time which can further decrease expenses. For example you might be able to quit a side hustle or second job once you’ve paid off your house and thus have more spare time to go through your expenses and fix them up.
Finally, when you have very little cash flow and money, most people tend to buy the cheaper quality things like shoes, appliances or cars. These lower quality things often cost more to run or maintain and then die quicker too leading to more expenses in replacement costs. Conversely, if you have the money to pay for good quality things they last longer and save you money by being more energy efficient.
All these benefits combine to decrease expenses over the long term, which increases cash flow, which then further helps decrease expenses in a powerful feedback loop making you richer and less time poor.
In an increasingly interdependent and volatile world flexibility is incredibly underrated. While it might not occur to you at first, a key benefit of a paid off house is being able to be more flexible with how you design your general lifestyle and day to day activities.
Paying off your mortgage early gives you access to all the mortgage payment money that would be going to the bank for yourself. While paying off a smaller debt might not have this effect, mortgages are so large that once they’re gone, you can make radical changes to your working and living arrangements that you might have never considered possible.
You can quit your boring, dull job and instead work full time on building up your own business. It doesn’t matter if it takes you 6 months to make your first dollar as your expenses are reduced so much. You can keep working that dull job but instead take unpaid leave and go on much longer vacations. Or that extra cash flow can be used to pay for things that have always been on your bucket list.
Beyond just buying things or investing, increased flexibility allows you pivot course at the drop of a hat when it becomes really important to you. Perhaps your mother or father lives 1,000 km away and all of a sudden becomes very ill. Moving or even just going on unpaid leave for an extended period of time is now possible meaning you’re able to live life and be there for the ones you care about instead of having no choice but to remain a wage slave.
Flexibility isn’t needed all that often in life, especially for those living in first world countries. But when you do need it… it can be a core, life changing moment and not being tied down to a huge mortgage is often the tipping point for whether you can or cannot be flexible.
Makes Retirement Easier
As covered in Should I Pay Off My Mortgage, one of the main reasons financial experts recommend paying off your home loan early is that it makes going into retirement easier. Having zero debt reduces pressure on your retirement assets and just simply makes you more secure to financial and life shocks as outlined above.
One of the other benefits of a paid off house though is that it also makes saving for retirement – or just investing in general – easier given the higher cash flow. More cash flow means more money flowing towards super or retirement accounts. This also leads to decreasing expenses as covered above which again adds to more retirement savings.
Those higher retirement savings earlier on means more ability for your money to compound on itself which is – you guessed it – more money for your retirement. This increased focus on investing and wealth building can also make for a critical shift in many peoples money mindset.
Not having a mortgage payment in retirement also means you don’t have to save as much as your expenses are lower. This has an even bigger impact due to how investing and returns work. If you’re paying $1,500 per month, you’ll typically need about $450,000 in investments (using the 4% Rule) to generate that income. That’s a huge difference that you now no longer have to worry about.
Makes Raising Children Easier
Most agree that it now takes two people working full time to raise a family and pay all the bills. Many would even say two people, each with multiple jobs! However when you eliminate the biggest bill off all, your mortgage repayments, things change.
It’s becomes very easy to only have one parent working while the other one stays home full time and takes care of the kids. Without the huge drain of mortgage repayments the one remaining working parents income can usually cover all of the expenses and then some. It also can significantly reduce overall spending as you no longer need to pay for child care.
While most people go the route of having children first and then paying off their mortgage later, you can actually do it the opposite if you hustle a bit. There is also the other option of having the bulk of your mortgage paid off by the time you begin to have children but either way it makes things considerably easier.
One of the most memorable benefits of a paid off house is having more fun by doing the things you love or doing them more often. This is often going on holidays, going on longer or more expensive holidays or just being able to afford slightly more expensive hobbies like having a project car, going skiing or sailing.
Life should after all, be about living and more often than not you need money to help do that living. For many living life well includes helping others or even shouting their friends and family drinks or food on special occasions. Having all that extra cash flow easily allows this, but just make sure you’re not substantially increasing your Lifestyle Inflation as it can be a slippery slope.
The Bottom Line
Hopefully it’s clear by now that the benefits of a paid off house go far beyond simply not being in debt or saving hundreds of thousands of dollars in interest. From increased financial security, increased flexibility in how you operate your life, better investment and retirement prospects all the way down to just being able to relax and have more fun. Knowing How To Pay Off Your Mortgage Faster is the gift that keeps giving for decades.
You’ll be light years ahead of virtually everyone else out there and have a rock solid foundation of financial security for both yourself and your families future.
The benefits include: 1) How to pay off your mortgage faster than 99% of people with one hour a month of work 2) How to get rid of your debt and have the freedom to spend money on the things you love, guilt free 3) Clear outline of how to setup your expenses, mortgage and general finance 4) How offset accounts work and how to get the same result without being gouged by the big banks 5) How to cut through the crap and focus on the things that truly matter when taking down a mortgage 6) How to adjust the strategy so it works for you, even if you have kids, even if you only have one income 7) How to do all of these things and maintain a normal social life (and never be cheap).