Should I Pay Off the Mortgage or Invest?

Why Home Ownership Meant More Than a Roof

I have asked myself many times whether I should pay off the mortgage, invest or do both? Why buy a home? I wanted a place to call my own, a place to put roots down.

My parents separated when I was five years old. My childhood was lived between where each of my parents lived, boarding schools and where grandparents lived. As a university student I lived in shared accommodation for 8.5 years. The biggest share house had 10 people. As a junior doctor I moved every three to 12 months. Neither of my parents own a home.

So home ownership for me was more than having a roof over my head. In essence, owning a home was about unpacking some of the emotional and psychological aspects of my upbringing. I do not want to repeat the mistakes that those before me have made.

Exploring the Emotions Behind Debt and Security

Emotions are what makes life. Emotions are to be explored during the financial independence journey. Why is it that I want financial freedom? Is it that I want to have my own sense of security? Security, what is that? Is security a place or state of being?

How do I let go of scarcity traits that were passed down to me? How do I let go of fear? Fear of success, fear of failure. When I hear the word debt, what emotions do I feel? When the investment market is down, how do I feel? Why do I track the numbers? What it is the freedom that I want?

Buying the Cottage

So back to the question of should I pay off the mortgage or invest? When I got my mortgage in 2018 it was on a 30 year term. I was not excited about the $450,000 (I immediately put $50,000 in the redraw). The bank broker suggested that it was better I have the extra $50,000 I had saved available in case.

The house I bought did need some repair works. I had fallen in love with the charm of a small cottage with a picket fence. The sea-side town I moved to had many such properties. Most had a hefty price tag. This was especially true if they were heritage listed, renovated, or close to the river or sea.

I found one that was not heritage listed, located a short walk from the main strip. Three bedrooms, two bathrooms including en suite. It was below the median house price. Australian house prices are ridiculous. The house had a lot of potential, I would get to do some small projects on my days off. However, I had to wait a year before any renovations.

Frugal Home Improvements

Why wait a year? I had read somewhere that it is best to wait before doing any improvements. This gave me time to know the house and decide on priorities. Also, I had set the budget to 4% of the purchase price.

Initially the novelty of wearing scrubs to paint and do-it-yourself (DIY) jobs was exciting. I would work three to four days in general practice, then have the other days for DIY jobs. Later on I wondered if I would have been better off working more days to earn more money, then outsource the DIY tasks to professionals.

I did hire people to do some work that I couldn’t do. What I realised is that I did enjoy doing some work myself, and it did cut down costs as well. The satisfaction of enjoying the work I’ve done is priceless. For instance, when I look at the picket fence I can remember the work it took to do the painting.

Discovering FIRE

In the first three years I was relentless in channelling funds to the mortgage. I wanted to get rid of it, I do not like debt. When I discovered FIRE (Financial Independence, Retire Early) in 2021 it dawned on me that I needed some assets. My focus then became investing as much as possible.

I refinanced to a $300,000 mortgage with a 20 year term in 2022. Now it’s 2024 the mortgage is now $199,075. The Handsome Surfer and I call this place home. I started the mortgage journey as an I, now we are a we (will blog about how we manage money).

From this year onward I am channelling more funds to getting rid off the mortgage. A financial adviser has modelled scenarios. Oddly enough, psychologically I could not bring myself to stop investing and focus on mortgage clearance. I reduced the automated investments to $2,400 a month. This change was a happy medium. The rest of the funds go to mortgage clearance.

Choosing Simplicity

On a side note, I am beginning to see that bank products are designed to create complacency. Funds in the offset account can create a false sense of achievement. I do not have to worry about paying off the mortgage, I can put the funds in the offset instead? I am paying less interest anyway.

I can debt recycle. How about I make my non-deductible bad debt into deductible good debt. I can put the funds I am going to invest into the mortgage. I can then draw these funds to invest, then get a tax deduction.

I am realising more and more that I like simplicity. If I have fewer obligations to the bank I have more freedom. If I can achieve my goal without taking on extra risk, why do I then need to take the risk? The emotions are overruling the numbers. I am eagerly counting down to parting ways with the bank.

Look at that seal. What lessons can I learn from the seal?