Ramsey Solutions financial expert George Kamel and his wife paid off their 15-year mortgage early — in 26 months — and in a recent video, he advised others to do the same. However, some financial experts say you might be better off investing your money than applying it to your mortgage, depending on your financial circumstances.
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So is it better to pay off your mortgage early or invest that money? Here are five things Kamel said he learned by paying off his mortgage early and living mortgage-free, which can help you decide whether paying off your own mortgage early might make good financial sense for you.
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5 Things George Kamel Learned From Paying Off His Mortgage Early
As a Ramsey Solutions team member, Kamel teaches Dave Ramsey’s seven baby steps for getting control of your money, which include paying off your mortgage early. For those of you who are unfamiliar, it’s essential to know that the Ramsey team recommends paying off your mortgage only after you’ve completed the prior baby steps. These steps include paying off all other debt, building an emergency fund and regularly contributing to a retirement fund.
Once you’ve completed the first five baby steps, you should prioritize your mortgage, which is step six, and based on Kamel’s experience, here’s why.
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You Have More of a Margin
“Paying off your mortgage knocks out your biggest fixed expense,” Kamel said. You can then use the extra cash for other things, such as investing and saving for vacations. Plus, it gives you more breathing room in your budget.
As the Ramsey Solutions experts recommend, you should build your emergency fund before tackling your mortgage. If you put all available funds toward your home loan, you won’t have cash to cover unexpected expenses.
Michele Lerner, a contributor to Buy Side From WSJ, also stressed that you need to consider your emergency fund’s balance before getting too aggressive with paying down your mortgage.
You Have More Freedom
Paying off their mortgage has given Kamel and his wife more financial freedom, allowing them to go from two incomes to one when they had their first child.
Kamel also pointed out how much easier it can be to move when you aren’t bound to a mortgage, even one with a low interest rate. If you bought your home in 2020, when interest rates were below 3%, you likely don’t want to move now that the average rate on a 30-year mortgage is well over 6%. Plus, when you sell a home and don’t have to use the profits to pay off the mortgage, you might be able to buy your next house with cash, which is one of the biggest benefits of living a mortgage-free life, according to Kamel.
You Have More Peace
Kamel believes that having no debt equals less risk, and less risk equals more peace. Weathering tough financial times is much easier when you don’t have to worry about how you’ll pay your mortgage on top of your other bills.
In the past 15 years, the U.S. has experienced two significant spikes in mortgage delinquencies: once after the subprime mortgage crisis of 2007 to 2010 and then in 2020, during the COVID-19 pandemic. During these periods, those who owned their homes outright likely fared much better than those who were strapped with mortgage payments.
You Have More Wealth
Spend a few minutes with a mortgage calculator, and you’ll quickly see how much an early mortgage payoff can save you. Consider this example from Ramsey Solutions. If you have a balance of $350,000 on a 30-year fixed-rate mortgage and decide to put an extra $1,000 toward it each month, you could pay off your mortgage 16 years earlier and save about $156,000 in interest in the process.
“Paying off the mortgage is a forced savings plan with a guaranteed return,” according to Kamel, especially considering how much your house may appreciate in value. Plus, the less you owe on your mortgage, the greater your net worth will be.
You Have More Money To Give
“Giving is the most fun you can ever have with money,” Kamel said. While you may not share Kamel’s belief, freedom from a mortgage payment can enable you to donate more to causes that are important to you.
Pay Off Your Mortgage Early or Invest?
Kamel noted that Ramsey Solutions’ National Study of Millionaires revealed that the average millionaire pays off a home in 10.2 years. Perhaps emulating the financial habits of millionaires can help you build wealth too. However, whether to invest or pay down your mortgage is not as simple as determining which option might save or make you the most money.
According to Morningstar, there’s no one-size-fits-all answer to the question, and the right choice depends on several factors, including the overall economy, your age, whether your mortgage provides a tax advantage and more.
A financial advisor can help you choose the best option, but if you decide not to seek professional advice, following Ramsey Solutions’ seven baby steps can help ensure you’re in a good financial position to prioritize an early mortgage payoff.
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This article originally appeared on GOBankingRates.com: 5 Things I Learned Paying Off My Mortgage Early, According to Money Expert George Kamel
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