I never thought I’d buy a property cash. Yet this is my second one. Right out of college, I had $25K in savings, thanks to a lot of student jobs, and the French system’s cheap tuition. I wanted to put the money down for a flat, but since my work contract was ending with the company that had paid for my master’s degree, and I planned on traveling the world for a year, the bank was not too fond of the idea.
So I went looking, to see what $25K saved up would buy me. If I wanted something near Paris, the answer was almost nothing, but a 20sqm studio flat in one of the worst neighborhoods of the country,about 15 miles from the center. I did way too little research, blinded by the perspective of passive income, and listened too much to what the realtor was saying.
He said the neighborhood had reached the bottom, what used to be a working class residence was now overcrowded with illegal migrants but thanks to a lot of public funds, it would get better in 3-5 years. In the meanwhile, I would get a rental return of nearly 10%, something unheard of in the center of Paris.
I went for it. Had I done ALL my homework, I would have learned that the council AND the homeowners’ association were deeply in debt, that they were poorly administrated and both local taxes and condo fees were among the highest of the country, basically to pay interests on the debt.
I have to admit I freaked out a little, but I went traveling anyway, and for 10 years the property was managed professionally, so I didn’t have to worry about anything. I had an insurance to cover the rent which proved useful since the tenant was not so inclined to pay, then died, then his widow squatted for a while until the police got her out in March 2012.
Let’s not digress. Having no mortgage gave me peace of mind for those 10 years. I could afford the condo fees thanks to the rent and anything on top was for me. No budget stretch, no ”what if the tenant leaves”, to be honest I barely reviewed the statement the rental agency sent over, I just waited for my quarterly money transfer to kick in.
Then I spent a stressful six months looking for a buyer after the widow was evicted, but finally sold the place at the end of 2012. The proceeds allowed me to buy a place cash in Guatemala. I should say a home. My residence. For the first time, I am living in a place that I fully own. And it has a lot of benefits.
- I don’t have to pay a mortgage so all my would-be rent money can go into repairs and improvements to turn the place into a home.
- I can sleep at night knowing that even if I go broke I will still have a roof over my head. And some land to grow food, since the property came with 90 acres of land.
- I could take a loan against my home in case of financial hardship. Although I hope I will never have to, and will certainly not take a loan to buy a new car or take on some kind of consumer debt, my cash is invested in an appreciating asset (since we are working like crazy on it), and can be partially withdrawn to cover an emergency. Mortgage rates here are around 9-12% so it is a pretty healthy return on investment.
- I can rent it without asking my mortgage provider for an authorization, or them changing the rate to a buy-to-let mortgage.
- I can brag about it and paint the parcel red in Google Maps and say ”that little corner of the world is mine”.
Yes, that is exactly what I did!
- Even though monthly expenses are crazy at the moment with all the improvements, the ”survival” mode budget would be very low, I would say we can live with $250 each a quite basic life with no luxuries.
- It makes the financial future bright. Knowing I could weather any storm makes me want to take more risks, try to grow, start a business, invest… with a comfortable safety net in the form of a home. I admit it is not as liquid as a cash emergency fund although many people with emergency funds still have mortgages so it kind of evens out.
There are lots of mortgage options but the best one I think is having none.
Any other pros to having no mortgage?
This post was featured on The Frugal Farmer, Mom and Dad Money, Carnival of Wealth, thank you!
FAQs
Increased Savings Rate
Is it good to have no mortgage? ›
Key Takeaways. Paying off your mortgage early could free up your cash for travel, retirement, or other long-term plans. Being mortgage-free may insulate you from losing your home if you run into financial difficulties.
Is it better to have mortgage or not? ›
Having a mortgage can allow you to use your cash for other purposes, such as investing. In the long-term, investing has the potential to earn more profits than you would have saved in interest in closing costs.
What are the psychological benefits of paying off mortgage? ›
Once debt is paid off, your self-confidence can make a fast turnaround. Some individuals even share their debt stories out of a renewed sense of confidence, according to Dlugozima. “You become more open about it because you've gotten through the other side,” said Dlugozima. “It's empowering.”
At what age should your house be paid off? ›
O'Leary's Take on Paying Down Mortgages
To O'Leary, debt is the enemy of any financial plan — even the so-called “good debt” of a mortgage. According to him, your best chance for long-term financial success lies in getting out from under your mortgage by age 45.
Does it hurt your credit to not have a mortgage? ›
Not having a mortgage doesn't hurt your credit scores, it just doesn't help them. Points aren't taken away because you don't have a mortgage. However, you might gain some points if you do have a mortgage.
Is being debt free the new rich? ›
Myth 1: Being debt-free means being rich.
A common misconception is equating a lack of debt with wealth. Having debt simply means that you owe money to creditors.
What happens when you fully pay off a house? ›
When you have paid off your mortgage in full: Your escrow account will be closed. Any funds remaining in the account will be returned to you. The mortgage servicer is obligated by law to send you your escrow refund, if any, within 20 days after it closes your account.
Is it foolish to pay off a mortgage? ›
To be sure, if all of your higher-interest debts are paid off, using your extra cash to pay down your mortgage or add to your investment portfolio are both solid financial decisions. But depending on your unique circ*mstances, one could be a more financially appealing choice than the other.
Is paying off a mortgage smart? ›
You might want to pay off your mortgage early if …
You want to save on interest payments: Depending on a home loan's size, interest rate, and term, the interest can cost hundreds of thousands of dollars over the long haul. Paying off your mortgage early frees up that future money for other uses.
Key takeaways. Paying off your mortgage early can provide several benefits, including peace of mind and freed-up cash flow. However, paying off a mortgage early is not always the best idea, even if you have the money.
What happens when your mortgage is paid off? ›
Once your mortgage is paid off, your lender will remove their charge (their legal right to secure a debt against your home) and will return your Title Deeds if you want them. Title Deeds are paper documents showing the chain of ownership for your property.
Does paying off mortgage reduce stress? ›
No doubt paying off a home will bring you more peace and less financial stress. However, because there are perpetual taxes and maintenance costs to pay, the financial relief may not be as great as expected.
Do the rich pay off their mortgage? ›
Millionaires have diverse financial strategies, and while some choose to pay off their homes early, others leverage mortgage debt to build wealth through investments. The key takeaway here is that homeownership should align with your broader financial goals.
How many homeowners have no mortgage? ›
Nearly 40% of U.S. homes are mortgage-free, census shows.
What age should I have no mortgage? ›
“Shark Tank” investor Kevin O'Leary has said the ideal age to be debt-free is 45, especially if you want to retire by age 60. Being debt-free — including paying off your mortgage — by your mid-40s puts you on the early path toward success, O'Leary argued.
Is it smart to always have a mortgage? ›
If it's expensive debt (that is, with a high interest rate) and you already have some liquid assets like an emergency fund, then pay it off. If it's cheap debt (a low interest rate) and you have a good history of staying within a budget, then maintaining the mortgage and investing might be an option.
Is a paid-off house worth it? ›
You want to save on interest payments: Depending on a home loan's size, interest rate, and term, the interest can cost hundreds of thousands of dollars over the long haul. Paying off your mortgage early frees up that future money for other uses.
How does it feel to be mortgage-free? ›
Becoming mortgage-free feels fantastic. After all, a mortgage is often the biggest debt we ever take on – and it can take up to 25 years to pay it off, and own your home outright. That's decades of putting money aside, comparing interest rates, or shopping for the right mortgage.
What happens when you no longer have a mortgage? ›
Once your mortgage is fully paid, your escrow account will be closed. As required by law, any remaining funds will be returned to you within 20 days. With your mortgage settled, you are responsible for managing and directly paying for your homeowners insurance.
