31-Year-Old Pays Off Mortgage In 6 Years – But His CPA Uncle Calls It A Foolish Move: Who's Right?

A 31-year-old homeowner recently sparked debate on Reddit’s Bogleheads forum after paying off their mortgage in just six years, only to be called a “dumbass” by their CPA uncle. The young homeowner, who had a 3.375% interest rate on a 30-year mortgage, sought opinions on whether their decision was financially sound.

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“Paying off debt feels great and to own an asset like a house outright is a great feeling,” the homeowner wrote. “Did I waste too much money paying my house off so early and should have put it into something like VOO? Am I in a better position where I can now throw down more money into my retirement and brokerage account to invest now more than ever? 

The community’s response was mixed. Many acknowledged the psychological benefits of being debt-free while pointing out the potential opportunity cost.

One commenter noted, “Financially suboptimal. Psychologically, could be excellent.” They added, “This dude has a paid off house; they are absolutely killing it!”

Another user shared a personal perspective: “Having always lived in fear as a child of losing our home, I too made it a priority to pay off my house as soon as possible. Intellectually, I understand that I likely would have been better off financially investing that money. Psychologically, the impact has been indescribable.”

Some responses highlighted the freedom that comes with owning a home outright. “You’re free, my dude! Your finances are presumably pretty damn easy these days. Your stress level should be quite low,” one user commented.

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However, others pointed out the potential financial drawbacks. One detailed analysis suggested, “Without knowing all your numbers, we can safely assume this was a decision that likely will hurt you negatively by at least a couple hundred thousand dollars.”

Ultimately, the consensus seemed to be that while the decision may not have been optimal purely financially, the peace of mind and flexibility gained could outweigh the potential lost investment returns for some individuals.

As one commenter succinctly put it, “You did great. I haven’t heard of people being mortgage free at 31 since my grandparents walked this earth.”

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There are financial implications to paying off a mortgage in 6 years – some good and some bad. 

Pros:

• Interest savings: By paying off the mortgage early, the homeowner saved a significant amount in interest payments over the life of the loan.

• Increased cash flow: Without a monthly mortgage payment, the homeowner has more disposable income to invest, save, or spend.
• Financial security: Owning the home outright provides security and eliminates the risk of foreclosure.

Cons:

• Opportunity cost: The money used to pay off the mortgage could have earned higher returns if invested in the stock market. For example, investing in an S&P 500 index fund historically averages a 9.8% return, which could outperform the 3.375% mortgage interest rate.
• Tax implications: The homeowner will lose the mortgage interest tax deduction, which could result in higher taxes.
• Reduced liquidity: Paying off the mortgage early ties up a significant amount of money that could have been used for other purposes or emergencies. 

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