As I sadly watch my stock portfolio correct by over 10%, I find serenity in my paid-off home. No matter how much the stock market tanks, it's comforting to know I'll always have shelter to take care of my family.
It's funny, but only active investors, people in charge of their family's investments, or personal finance enthusiasts may feel a heightened sense of stress during stock market corrections. If you practice buying the dip, as I always do, it can feel like repeated mental warfare as the stock market keeps dipping, making you feel like a fool.
Imagine betting on red 15 times in a row in roulette, only for black to show up every time. That’s exactly what this latest correction feels like. Eventually, a win will come—but by then, the losses may already be too steep.
For my wife, who doesn't regularly follow the stock market, this latest correction has had little effect on her mood. Meanwhile, my young kids are blissfully unaware of the rising risks of a recession and the looming mass layoffs. They just want to play and have fun.
For me, I've had to work hard to not let three weeks of non-stop stock market declines negatively affect my mood with my family. It hasn't been easy, as I've found myself being less patient than usual. This latest discomfort is a good reminder of why I prefer real estate over stocks to build wealth.
If you are responsible for your household's finances and don't enjoy losing a lot of money quickly in the stock market, consider paying off your house. I've paid off several houses over the past 10 years, and I've never regretted any of them.
The Value Of A Paid-Off Home Is Greater Than Just Money
When mortgage rates are low, some people like to make fun of those with paid-off houses. Even though ~40% of homeowners have no mortgage, these critics somehow think those without one are foolish. “You could make a lot more money in stocks and other investments by having a mortgage and not paying it off!” is their most common criticism.
While it's certainly true that leveraging a mortgage can lead to greater potential returns, critics fail to recognize the value a paid-off house provides: reduced stress and greater peace of mind. The older I get, the less I want to owe financial institutions money. Instead, I want to simplify my life with fewer bills and less debt.
To me, the feeling of financial security is worth far more than potentially earning an extra 4-8% a year on my investments. And that’s assuming things go well. Sometimes, investments underperform cash, Treasury bonds, and real estate. Sometimes, you can even lose a lot of money instead.
With a paid-off home, no one can force you to leave if you don’t want to. Meanwhile, each month without a mortgage payment improves your cash flow, giving you more flexibility and peace of mind. What a wonderful situation to be in, especially with the specter of recession looming.
Those Who Criticize Homeowners Without A Mortgage
What I’ve also realized about people who mock those with paid-off homes is this: How many of them could afford to pay off their homes themselves? I doubt it’s more than 50%. After all, one of the main reasons people invest is to eventually buy and pay off a home.
So maybe those who criticize homeowners without mortgages secretly want to be mortgage-free too but don’t have the means. And because they can’t pay off their own homes, the only thing left to do is criticize those who have. Such is human nature – trying to bring others down to elate their own status.
As the percentage of your home equity rises, your feeling of financial uncertainty declines. In fact, the more certainty you feel, the more confidence you will have in buying the dip when uncertainty is highest. When that final mortgage payment is made, the feeling of financial achievement is priceless.
A Paid-Off Home Can Appreciate as Well
Here’s the thing about your paid-off home, it can make you money or save you from losing a lot of money as well.
In normal times, real estate tends to appreciate by 4-5% annually. Sure, that's lower than the S&P 500’s historical 10% return. But 4-5% appreciation on a large investment can generate a far greater absolute return than what your stock portfolio delivers. And if you take on mortgage debt, the cash-on-cash return is higher.
During downturns, real estate tends to hold its value well as investors seek the safety of bonds and tangible assets that generate income. Instead of appreciating 4-5%, real estate might only rise 0-3%, while stocks could easily decline 5-20%. However, since you’re not paying rent, your effective return is actually higher by the market net rental yield.
Finally, in severe downturns, both real estate and stocks decline. But while residential real estate might drop 20% over several years in a realistic worst-case scenario, stocks can crash 50% within months. And yet, since homeowners aren’t checking a daily ticker symbol, the experience feels far less stressful. Further, homeowners get to enjoy their homes.
When you own a paid-off house, appreciation rates—whether up or down—don’t affect you nearly as much. Instead, your focus is on living your best life while pushing money into the background. Conversely, the end game for investing in stocks is to make a profit to buy something enjoyable. Hence, all the volatility can be distracting.
Paying all cash for a house comes with a psychological hurdle, but in my experience, the peace of mind is well worth it.
A Paid-Off Home Gives You Confidence To Live Better
We all need food, clothing, shelter, and transportation. If we can lock in our shelter costs, everything else becomes much more affordable. And if you take it a step further by fully paying off your home, you’ll find yourself living with greater confidence and freedom.
Want to take a sabbatical? Go for it! Dying to leave your job for one that fits your passions but pays less? No problem. Want to aggressively buy the S&P 500 dip? You bet. Thinking of finally starting a family? Just make sure they are the one.
Yes, over the long run, investing in stocks will likely generate greater returns. That’s why the vast majority of homeowners invest in stocks as well. But during downturns and recessions, a paid-off house shines the brightest. If you have one, embrace it. If you don’t, recognize its value.
I certainly don’t want our economy to collapse. Financially, I’d love nothing more than for stocks to rebound and outperform my real estate portfolio. But if that’s what it takes for egg prices to drop and for our aluminum and steel industries to be saved, then so be it. Those with paid-off houses will be far better off than those without.
Reader Questions
Do any of you have a paid-off house? If so, how do you feel about being mortgage-free during stock market corrections and economic slowdowns? As you’ve gotten older and wealthier, have you found yourself less focused on always maximizing profits? Why do some people with mortgages criticize homeowners without one?
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I have a lot of respect and admiration for those who are responsible with their debt and reach the incredible goal of paying off their mortgage. I totally agree with the benefits of reduced stress and freedom.
I have a relative who had every chance of sticking to a budget throughout her adult life and paying down debt responsibly, but she still has a six-figure mortgage at age 78 because she refused to take her finances seriously and kept taking out HELOCs for decades. And she’s definitely not the only one who’s gotten into financial trouble like this and not been able to get out.
If you have young children or relatives, it’s so worth it to instill good financial habits and values in them early. It can truly set them up for life and bring them actual relief and enjoyment in their later adult life.
Currently paying 2% on year 3 of a 15 year mortgage. I have cash to pay off the mortgage if I want. I struggle with the allure of a paid off home versus paying a mortgage with significantly cheaper money as inflation continues its inexorable march forward. Regarding the topic, there is no “right” answer for everyone, the answer that is right for me is most important.
I hear your dilemma. And I have a post about it upcoming.
If you still have a target minimum exposure to equities or whatever else you want after paying off your mortgage, I still would. If you don’t, then keep it. Such cheap money.
I’m enjoying my paid off home too during this time. I have a kid on the way and am likely to lose my job this year. It’s a little stressful, but the paid off home makes it less stressful.
“But if that’s what it takes for egg prices to drop and for our aluminum and steel industries to be saved, then so be it”
I’m still waiting to hear the compelling case for why our aluminum industry needs to be “saved”. Aluminum smelting is extremely toxic and what’s the stat I saw a couple of days ago. We “save” 30,000 jobs but there are ~800,000 that are reliant on aluminum being inexpensive…so what are we doing here exactly? Maybe that was steel. Same point though.
You don’t like giving up 10% of your portfolio gains and potentially losing your job or 50% lower prices so far since the peak? Think about how many more omelettes you can eat Everyday now!
I paid off my home over a decade ago. It was the best singular financial decision I’ve ever made. Whether we admit it or not, money and investing can create an emotional roller coaster. Fluctuations in the market can effect our happiness or cause great despair. We simply can’t predict what the markets will do and that uncertainty can bring anxiety. There’s a reason that money issues are a leading cause of divorces. Having a paid off mortgage is about gaining at least partial control of our financial future. It gives me one less thing to worry about and sleep at night.
I know a lot of people will argue that having a low rate mortgage is “smart.” But I’ve yet to meet someone with a paid off mortgage who said it was a poor decision.
I paid off my home a year ago when my ARM rose to 7%. I honestly didn’t think about it at all as the market stopped recently.
Having a paid off home is great, especially if it is a reasonable percentage of your net worth and you have adequate invested asset relative to your age. My own experience though is that it is much more valuable if the paid off home you have is the most expensive home you think you’re likely to need. If you have a paid off house now, but think you’ll likely need to move up in home in 5-6 years once children come into the picture, you still feel like you’re chasing the housing market a little bit. It’s still great, and gives you tons of security in a period of volatility, but that is the one catch I’ve seen.
Matt, that is a fantastic perspective. Thank you.
If you have not found your forever home, then whether it is paid off or not, there will be FOMO in a pool market as home prices and stock prices keep rising higher. I can see how you would feel a little bad for not leveraging up more. But still, having all that equity is nice as you could leverage up if you wanted to and buy a nicer home.
I didn’t think about your perspective since I finally got to the top of the property ladder that I want to get to. I have no desire for a bigger home. The only thing I would like is to install a hot tub hah.
Great timing of this post. My wife and I are late 30’s with a 10 week old baby. For the past 16+ years we have just focused on careers, and wealth building. NW hovering around low 3m all in, including primary residence, 401ks, cash, small after tax stock accounts, private equity deals, and rental properties out of state. (We live in SoCal)
With the addition of the little one, perspectives change. I had an opportunity fall on my lap for a new job that will reduce my commute time by over 1 hour a day, and allow more time with the family. Great move, great opportunity, but I left a long term job, so from a job security standpoint I’m starting over.
My wife works for a Fortune 500 company remote, great pay and benefits but has long term aspirations of consulting so she can have more freedom.
Lately, our heartland rentals have become money pits. We have owned them 5-6+ years, and although they cash flow good on paper, our net cash flow has been dwindling due to repairs, remodels, etc.
For years, I have justified keeping them because they are financed at low 3-4% rates. Lately, my mindset has shifted, and we are actually selling two of them this spring. Between equity appreciation and principal pay down, we will do great on the sales.
We owe 730k on our primary (worth low to mid 2m), which is financed at 2.875% on a 30 year jumbo fixed (25 years left). My plan with the rental proceeds? Payoff 40% our remaining mortgage and recast it.
I know everyone will say “but you can make 4% in HYSA or 10% in the S&P” (yes you can and that’s where we keep our 250k cash emergency fund at all times, HYSA).
What I have learned about myself since becoming a father:
Nanny’s are expensive
Your primary home is everything, and where we are going to raise our daughter (we are in a great community, with great schools and can live in this house long term)
Money is just money, but family and time are more important than everything
Do whatever it takes to sleep at night
By paying off 40% of our mortgage, it will allow a few things:
Do I want to retire early? Yes, but what is more important to me now is being healthy, happy, and around for a long time to see my daughter grow up. If that means we only achieve a 8m NW vs 12, so be it. I’d rather work a little longer and enjoy the next 30 years, than work 15, stressed, unhappy, leveraged and worrying.
For reference, we are debt free besides mortgages on our primary & rentals. No car payments, never had CC debt, paid off student loans by the time we were in our mid 20’s. We went hard on real estate for a long time, our side hustle has been rentals, flips, and buy and holds. (We have owned, sold, flipped or still own a total of 12 different properties). While we have both worked 50-60+ hours a week at our normal jobs, the real estate was our night/weekend project leaving little free time for a decade plus.
My wife had gone through some health issues in her mid 30’s so we didn’t know if we were going to be able to have a baby. She is our little blessing, and we are so grateful that she is in our lives, and that we didn’t have to go down the IVF road or fertility road was a huge bonus.
Life changes fast, adjust with the changes. Life isn’t all about ROI, and it’s taken me this to realize that.
Thank you for the timing of this article because it re-enforced our existing plans.
Hi John, thank you for sharing your story and your plan! Congratulations on the little one. She will give you more motivation than anything in the world.
That’s great that you two hustled hard on owning physical rental properties while you were younger. As you are finding out now, the desire to always maximize profits starts fading as family and health become more of a focus.
I think your plan is a good one, as you are moving more towards what feels best for you and your family. And yes, the marginal difference between $8 and 12 million is not great enough to change your life for the better. It’s great you’re recognizing that now and not after it is too late.
Paid off home helps mitigate risk of extreme economic situations. No worry about rising rents or adjustable rate mortgages. No worry about being underwater on a mortgage if housing prices collapse.
I paid off my home before the big run-up in values and saved more than $150,000 in interest payments. I don’t consider home ownership to be an “investment.” It’s an expense. Over the last 40 years I’ve owned 7 homes. If I added in the full cost of ownership (taxes, maintenance), it’s a losing proposition in most parts of the country up until COVID times, till today. Right now in my county there are 8,000 homes for sale. A normal year would have around 2,000 for sale. During the second year of COVID, we had only 250 available. This is a housing bubble. I would advise young people to stay away from home ownership right now. We will likely see late 1970s-style stagflation beginning by Q3 2025 if Trump continues his tariff terror campaign.