You’ve gotta hand it to Sean Cooper: In a mere three years, this Toronto homeowner made epic sacrifices to pay off a $255,000 mortgage on his $425,000 house. His reason: “For a lot of people, their mortgage is like a life sentence,” the 30-year-old explained to the press. “I just wanted to not have a mortgage hanging over my head.”
But some experts say the opposite—that Cooper made a colossal mistake.
Forget the fact that to pay off his mortgage this pension analyst took on two extra jobs (including in the meat section of a supermarket even though he’s a vegetarian) and worked over 100 hours per week. Let’s also set aside the fact that he stopped using his car and claims Kraft dinners were his “best friend” (because clearly his real friends stopped hanging out with him). No, experts argue that Cooper’s extreme mortgage-paying regimen may have actually damaged his financial health.
“Timely mortgage payments boost your FICO score,” says Kurt Westfield, founder of WC Equity Group. After all, any yokel who happens to be sitting on a pile of cash—thanks to a trust fund or windfall inheritance—can throw it at a house. But it takes perseverance to pay off a mortgage over 30 years, and this payment history is a boon if the day arises when you need to apply for more credit, whether it be for a budding business, your kid’s college loans, or unforeseen medical bills due to an illness in the family.
Then there’s the fact that, with all that money going to his mortgage, Cooper was most likely neglecting other financial priorities—like his retirement.
“With interest rates at a historical low, the math is fairly straightforward,” explains Shane Ray, a Realtor® in San Francisco. “If you’re paying an interest rate of 3.5% on a mortgage, and you pay it off, you’ve saved that 3.5%. But finding investments that have an annual return of 6% or more isn’t difficult. So if you take that money and place it in a higher return investment, you’re walking away with 2.5% more than you would have if you’d paid off that mortgage.” That’s why, as Jessica Fields, a real estate agent at Sotheby’s in Brooklyn, NY points out, “it’s not unusual that a buyer who could pay in cash for a home decides to get a mortgage instead.”
There’s a reason a mortgage is called “good debt.” Cooper, however, treated his mortgage like a disease.
“Having a mortgage is not really such a bad thing,” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. “When you think about what a mortgage is, it makes sense to pay it off over a long period of time. You use a mortgage to buy something that will last a long time—a home—so you would probably want to spread the payments for that expensive thing over the whole period you’re using it, just as you would with a car. [Cooper’s paying off his mortgage quickly] may work for him, but not for the typical person.”
So if you’re inspired to follow in Cooper’s footsteps, think twice and consider less drastic measures.
“There are less extreme ways of doing this,” Reiss says. “Some people make payments every four weeks instead of every month. This results in one extra payment every year and does not seem so painful. Others will put extra payments into their mortgage—a tax refund, a bonus, money from a consulting gig. This is also less painful because you were probably paying your regular expenses without that money already.”
Bottom line: Don’t beat yourself up for having a mortgage. Embrace the benefits, relax, and live a little. Cooper, for one, is now playing catch-up. Now that he’s debt-free, he’s moved on to his next goal: He’s looking for love. Because let’s face it, most bachelorettes aren’t into eating mac ‘n’ cheese on a date.
Published by Judy Dutton on realtor.com.