Spring Homebuying in 2026 and the Case for Never Paying Off Your Mortgage

16:17NerdWallet has one that you can use for free. And of course, you can find a link to that in today's episode description.

16:22Sean Pyles:A key concept in this debate is the idea of opportunity cost. And this is when the tentative profit you could have gotten from one option is lost because you chose an alternative. So in other words, if you pay off your mortgage early, you could be missing out on opportunities in the market. And then on the other side, if you keep the mortgage, you could be missing out on opportunities at a company of paid off mortgage. So, Kate, can we talk a little more about what the opportunity cost of each option would be? So it's really hard to get into numbers here because if we are talking investing and I am not an investment advisor.

16:54So I'm speaking as generally as possible here. You're looking at predicting a rate of return that is inherently unpredictable because it's the market. But that said, I did play around with a debt versus investing calculator. And yes, it's meant to compare paying down debt with putting your money in savings. But I put in the historic return on the S &P 500, so 10 % as my savings interest rate to kind of get an idea where we'd land. So the listener mentioned a 5.5 % mortgage rate. So I entered that. My imaginary home loan also still had 25 years to go,$300 ,000 balance. I've got, let's say,$1 ,000 a month that I can either put toward paying down my mortgage or toward investing.

17:35So at that 10 % rate of return on my hypothetical investment, the amount of interest I would save on the debt by paying off the mortgage was actually almost double what I'd make in interest on my investments. So high$800s versus mid$400s. Not the best. But say we're feeling, you know, we're pretty bullish. We're feeling optimistic. And we think that we could get a higher rate of return. So if we look at like S &P average over the past 10 years, that's a 15 % rate of return. So now the high 800s that I'd save in interest with my mortgage repayment is actually overshadowed by the cool million I would make investing.

18:12So it does kind of feel like something where you could find a way to make the numbers tell you the story that you want to hear. Yeah.

18:19Sean Pyles:And there's so much uncertainty around this because we don't know what the market is going to do, what home values will be like in the future. And yes, we saw a 15 % rate of return over the past 10 years or so. That's a bit of an aberration, and there's no guarantee we'll see that in the future. So you just don't know.

18:36Elizabeth Ayoola:So are we telling listeners basically that they're gambling?

18:39Sean Pyles:Investing comes with risk. I'll say that.

18:43Elizabeth Ayoola:Fancy way of putting it, Sean. All right. The listener brings up the idea of using a mortgage as a way to leverage the bank's money to invest in your home, which they describe as an appreciating asset. And they also frame it in a way that the asset will always appreciate, which I don't think is true. So I don't completely agree with that, considering that your home isn't always an appreciating asset. Obviously depends on the type of market you're in. But yeah, what are your thoughts on this, Kate? Yes, I 100 % agree with you, Elizabeth. So I want to be really clear that I am not saying the housing market is about to crash.

19:17I would not say anything even remotely close to that. But at the same time, it's really important to acknowledge that real estate, just like any other investment, like we just said, is not guaranteed to simply go up forever. Another thing is that the rate at which home values appreciate varies. So we had a couple of years post-pandemic where home values were increasing absolutely wild amounts, like double digits year over year. Now that's slowed considerably. And in a few parts of the country that got really overheated, it's reversed slightly.

19:47Elizabeth Ayoola:I have a mini side quest, Kate. Some people argue that your primary residence is not an investment because you live there and you're paying expenses out of pocket and it's not as liquid as, let's say, stocks. Now, the exception might be having tenants and then paying expenses and helping you generate income. But conversely, one could argue that if you build up enough equity in your home, that could be leveraged and invested. This is really like the fundamental question of homeownership in the United States. Like, is this something that is a public good and that we want for everybody and is simply important for us to have?

20:24Or is this a vehicle for wealth? because your home is a source of wealth, but it's kind of a weird one, right? So on one hand, it's worth a lot. This is likely the most valuable thing you own. But on the other hand, to use that wealth, to access that wealth, I don't think solid asset is a thing, people say, but this is a solid asset. It is as illiquid as you can get. Additionally, as long as we're talking about a primary residence, this is your home. So it's not just money. It's not just the bills you pay. It's probably a pretty significant emotional investment. And so we don't always think about this in terms of dollars and cents.

21:06For some people who are really intent on early mortgage payoff, the goal is really about this is my home and I'm going to own my home outright rather than here's what I'm going to save on interest. I actually have friends who came into a small windfall and that was what they decided to do. Their home was their only installment debt that they had. And they were just like, you know what? it would be cool to say that we own our house. We're debt-free. We own our house.

21:30Sean Pyles:And that really speaks to how this is not always a mathematical question. It's really an emotional one too. It can feel great to not have a debt that you're paying off on a regular basis. On the other hand, if you want to make sure you're set up for success in retirement, it may have been wiser, quote unquote, from a number standpoint, if your friends had invested that windfall, but that was their personal decision and that's okay. Yeah. I'm also thinking about how you really do need some discipline for the forever mortgage strategy to work while you're investing at the same time. So, Kate, I'm wondering what you think might be some common ways that people might mess up this strategy if they maybe aren't so disciplined.

22:08I mean, really, the main way would be spending that investment fund elsewhere, right? This money that you've set aside that you're putting toward investing rather than paying down your mortgage. What happens if you use it for a third thing? And sometimes, you know what, that might be intentional because you've had an emergency expense come up that has absolutely got to be dealt with. Possibly, though, it could be more just sort of like, oh, I forgot. And this money's right here in my account. So, you know, I could use it. Yeah, you want to go on vacation. You know, there's also the possibility, since we are talking a forever time span here, so pretty long, there's the possibility that like your priorities are going to change, right?

22:45Yeah. So maybe you were just like child free and like loving this like single, no kids life. But then you meet someone and it's just like, oh, my goodness, the whole world has changed. And now you've got like a kid on the way. Right. And that bundle of joy is like a big old bundle of expenses. So when you start looking, right. Yes. I mean, like, am I wrong? Like, no. So when you're looking at like, how are we going to pay, you know, for daycare or something like that? Like, yeah, you might start eyeing that money that you had earmarked for investment. Another thing is that like your income, of course, can change, too.

23:17So that could be because you've changed jobs. your household income has changed. Maybe you and your partner are all in on this strategy, but then you divorce. And even if you're the one who keeps the home, are you still going to have that much money to fund this investing? I'd also say, and I feel like I have to say this because this is a nerd wallet and we always say stuff like this, before you're considering putting this quote unquote extra money toward investing or your mortgage, are your basic financial bases covered. Do you have an adequate emergency fund is a big one that comes to mind.

23:50Sean Pyles:Yeah. And I also am thinking about how the forever mortgage argument has some blind spots. One is the assumption that you'll have the means to continue paying a mortgage into retirement. And that's not always going to be the case. In a worst case scenario, a few emergency expenses could wipe out your savings, and that might make it difficult to cover your housing costs. And also, even if you don't have a mortgage, it's not like your housing costs go away entirely because you'll still have things like property taxes to pay. Absolutely. So this is really where you would need to be diligently investing so that you're really feeling confident that you're going to be able to maintain that same standard of living, including, you know, in this case, paying your mortgage all the way into retirement.

24:34Again, like if your circumstances change and you're looking at a significantly lower income, you could end up in a situation where you're either looking to sell the home, like get the solid asset liquid, or potentially un-retiring, right, going back into the workforce.

24:50Sean Pyles:Yeah. And we haven't even touched on the fact that you need to have a very sophisticated investment strategy to know that you're investing the right amount in the right account, and you can withdraw that at the right rate with the right amount of risk. And I think this is something where you would want to really hire a professional to do this for you.

25:06Elizabeth Ayoola:Well, thanks for making that sound so complicated and difficult, Sean. This is where the rubber hits the road, right?

25:12Sean Pyles:Like you have to do it the right way.

25:14Elizabeth Ayoola:Yes, you're right. Thank you. Hopefully people listening will go and hire financial advisors. I'm scaring everyone here, but I should be. Yes. No, no. It's a real thing, though. I'm kidding. But seriously, it's a real thing. And I love that we have pointed out the intangible, like we said, the emotional and mental parts of this forever mortgage debate. Because as we're going through and talking about this, guys, I honestly would love to pay my mortgage off if I had one. I think peace of mind is something that everyone should have in retirement. And yes, that may look different. Some people may find peace of mind by having more money in the market and a forever mortgage.

25:47Elizabeth Ayoola:But please, I want that thing paid off in full.

25:50Sean Pyles:Yeah, I get that. I mean, just having debt can feel like such a weight on your shoulders. And having that for the rest of your life just sounds like a drag. And I don't really want that. Yeah. And overall, you know, that is our sort of nerd wallet party line on this. Like this is a personal decision, of course. But we don't generally advocate paying off your home loan for the sake of paying off your home loan. That said, when retirement's on the horizon, then our advice is starting to shift to like, okay, well, maybe you do want to prioritize paying down that loan. Yeah. Additionally, a lot of folks might end up inadvertently in a forever mortgage strategy because of just how late a lot of people are buying houses into their life.

26:30Sean Pyles:It's not like people are getting a house in their 20s anymore, right? Yes, definitely. And this is actually how 30-year mortgages came about in the United States. Like the idea was, if you're finishing school and you're going into the workforce, what would be a reasonable amount of time to pay off this loan so that you aren't paying the loan in retirement? And they came up with 30 years. But they're basing that on you entering the workforce and buying a home when you're like 18, 19, 20. Crazy. Not today's reality. Not today, right? Like this has been cited pretty much everywhere because it was a bonkers statistic.

27:04But like for anyone who has missed this, in 2025, the median age of first time homebuyers was 40, according to the National Association of Realtors. I'm not even there yet. Right. So yeah, exactly. So if you're taking out a 30 year loan and sticking with it, you are looking at celebrating your 70th birthday and paying off your mortgage. What?

27:25Elizabeth Ayoola:That sounds miserable, Kate. Why would you say that? Now I'm never buying a house. I'm just saying, like, that would line up. So maybe it's not forever, but it's for a real long time. I love that you gave us a little history lesson there, Kate, in terms of how the 30-year mortgage came about. And it brings me to the listener's question once again. And I think it brings up a broader conversation about how perceptions of mortgages are changing over time. Now, previous generations viewed a paid-off home as the ultimate safety net. But some people, like the listener, may argue that a$1 million mortgage and$2 million in liquid stocks is actually safer than a retiree with a paid off$1 million home and$500 ,000 in stocks.

28:09Elizabeth Ayoola:Do you think people are seeing burning the mortgage, a.k.a. getting rid of it, as a sign of financial freedom? Well, some people definitely do. And we know that there are folks out there who really advocate prioritizing paying off debt, being debt free. Like I can't I can't think of his name, but it's something like Rave Damsey. He's always like he is always talking about stuff like this. Right. Seriously. I was actually talking to one of the other writers on my team recently because she's been working on an article about this debate. And something that she mentioned is the idea that, you know, like so many other things like overall in the culture, but also in personal finance, this is really cyclical.

28:46So like in the 90s, it was much more like, hey, it's OK to have debt like this is a good debt to have. Whereas we shift into the 2000s, 2010s, especially with the housing crash, views shifted to like, oh, God, you know, your mortgage is a trap and you need to get rid of it.

29:00Sean Pyles:And how have you seen perceptions of mortgages change in maybe just the past five or 10 years? So this kind of ties back to what I was just talking about. But I think something that's probably supporting the idea of the forever mortgage is that we're really not demonizing mortgage lenders and servicers the way that we were like 15 odd years ago. So part of this is that legitimately there are fewer bad actors, mainly because we had so much regulation of mortgage lending that came out of that crisis. So now we have much more rigorous underwriting standards. lenders are required to lay out loan terms in like a clear and systematic way.

29:35And loan products that were pretty literally traps, like balloon mortgages, are just not a thing anymore. And so I think because of all this, people aren't really out there like, oh, you know, I love my mortgage servicer. But at the same time, like you don't have this active resentment toward paying that bill every month.

29:53Sean Pyles:Yeah. There's something about having a mortgage where it actually feels like a luxury if someone has a mortgage.

29:57Elizabeth Ayoola:Right? No, it's kind of like, yeah, I have a mortgage. Yeah, I think it's a bragging point right now. I think I'm also particularly keyed into this because I do a lot of work on all things lending, so mortgages, personal loans, and particularly student loans. And if you want a loan category where people are absolutely furious with their servicers, the entire system, completely resent having to pay that bill, that is student loans right now. Can't attest.

30:24Sean Pyles:I hate my student loans.

30:27Elizabeth Ayoola:All right, Kate, now we're going to round this up because we love a good scenario on this show. If you were 45 years old today with a 5.5 % rate, you had an extra 100K, would you put it towards the principal on your mortgage or would you put it into the S &P 500 and why? Okay, so this is kind of not a scenario because I am 45 years old. No, you're not. No, I very am. Yeah. So that's something.

30:58Sean Pyles:Wow. I thought that you were like fully 32 years old. Yeah. No, you don't have to say that. No, I'm not lying. Big reveal. I'm 45. And that is very true. So the house that we're living in now, our mortgage rates actually lower than that. But even if we were at 5.5%, I would pretty much like split the difference. So we do always pay extra toward the mortgage principle, like not the thousand dollars that I was giving in my example, but like a few hundred, because, you know, being able to pay a little extra, you're shaving time and interest off your mortgage is nice, right? It's fun to like, look at your amortization schedule and be like, oh, like, look what I did.

31:35At the same time, though, like I am not at all interested in aggressively paying off our home loan because like one, overall, that bill is affordable. On the other hand, what am I doing? I am maxing out my 401k and Roth contributions because as someone who like really did not start making grown-up money until her late 30s, I'm like really, really, really playing catch up for someone my age. Also, we kind of mentioned this before, but so being like, oh, I'm free and clear on the house, that would not be a big deal to me. So I live in a state where the largest part of our mortgage payment is the property taxes.

32:11And like Sean mentioned, your property taxes, your homeowner's insurance, that does not go away just because you paid off your mortgage. So for me, it definitely wouldn't be like, oh my goodness, this burden is lifted. It would be like, oh man, no one else is going to do an escrow account for me. So like I need to find a place to stash this money so I don't spend it. Yeah.

32:31Sean Pyles:Well, I do like how you're taking a holistic approach to answering this because you're thinking about your retirement and you're making smart use of the money by spreading it around because this isn't a situation where you have to put all of your eggs in one basket.

32:44Elizabeth Ayoola:It's not. I'm trying. Okay. Sean, you're in the hot seat now. Would you rather have a mortgage forever or pay it off as soon as possible?

32:53Sean Pyles:Well, you're going to be shocked to hear that I would do something kind of in the middle. I like a reasonable solution where I can get as much of everything that I want all at once. So I don't really want to be paying off a house in retirement, but I also want to use my money for things today, like investing for my retirement and going on vacation. So while I'm not doing this currently, Kate, I might take a page out of your book and put a little bit more toward my principal each month just because that can really help you accelerate paying off your mortgage over many, many years since they are seemingly infinite as we've been discussing.

33:25Sean Pyles:But, yeah, it's not going to be my top priority because I got this life to live.

33:29Elizabeth Ayoola:Exactly. You got this life to live. Just a mini last side quest before we close. But somebody that I know, well, someone that I know that knows that person. You guys know what I'm trying to say. Anyway. But this lady was very financially savvy. She saved all her money. She did all the investing. She retired last August. And sadly, she passed away last week. So she didn't even really enjoy much of her retirement money and all that she worked so hard to put in place. So just a reminder to your point, Sean, that you do need to live a little now because you can do all the right things financially and not even get to enjoy it.

34:07Elizabeth Ayoola:Oh, my God.

34:07Sean Pyles:You are justifying my impulse shopping. Thank you, Elizabeth.

34:11Elizabeth Ayoola:I mean, what am I here for? This is like the most sobering anecdote. I'm sorry. On a high note, I don't know. No, on a high note, I'm like, well, this is why I deserve a little treat today. Yes.

34:24Sean Pyles:Yes. That's right. Don't save them. And hopefully people won't be having a mortgage forever, but also at the same time, do what you want with your money and cover as many bases as you can and don't feel guilty about it. Yeah. Live your life. Great. Well, Kate Wood, thank you so much for coming on and talking with us about the Forever Mortgage. Oh, thank you for having me and getting me to reveal my age. Anytime. We'll have you on soon for more secret reveals. That would be great. I would love that. That's all we have for this episode. Remember that we're here to answer your money questions, so send them our way.

34:53Sean Pyles:You can leave us a voicemail or text us on the Nerd Hotline at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdwallet.com or leave us a comment on Spotify or YouTube, where you can also subscribe to watch our beautiful faces every single week.

35:11Elizabeth Ayoola:We would not be here without you, so we want you to come back again and again. But next time, we're going to be talking about combining finances before getting married, a juicy topic. Follow Smart Money on your favorite podcast app that includes Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.

35:28Sean Pyles:Here's our brief disclaimer. We are not your financial or investment or mortgage advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

35:39Elizabeth Ayoola:This episode was produced by our fabulous team, and that includes Tess Vigland, Hillary Georgie helped with editing, Eve Krogman puts together our audio and our video. A big, big, big thank you to NerdWallet's editors for all their help.

35:52Sean Pyles:And with that said, until next time, turn to the nerds.

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