This past week, an article I hosted by (Is Owning Your Own House Outright a Bad Idea?) received a huge boost in traffic…and it also caused a great debate. That great debate was is it better to pay your home off in full quickly, or should you put extra money towards other investments instead of additional payments?

Most commentators agreed that paying off a home in full was by far the best, and most would say only, option when it comes to home ownership. But I began to wonder why almost ALL of the comments I received on this article swayed toward this opinion. My guess is that many commentators were from areas that are more affordable than large, urban cities and maybe weren’t as affected by the latest housing boom.

The more I research home ownership, the more confusing the issue becomes for me. Research shows that historically, urban centers have had a higher number of renters than home owners and that seems to make sense – less land, more costly! Where as suburban and rural areas seems to be populated with a greater home owner population – greater availability of land, less cost.  Perhaps living in a large, sprawling urban center is what keeps me and others like me continuous renters.

Obviously affordability is a huge issue where I live. And the idea of stretching a mortgage our over 30-years is scary! Though 30-year mortgages are now so commonplace most individuals barely shutter at their mortgage lender suggesting such a loan. Again from a historical stand-point, 30-year mortgages began around the 1920’s and gained popularity during the 1930’s and’40’s. Obviously this was created by banks to increase the amount of home owners. And what a sneaky I mean creatively tactical creation this was; it not only increased the number of home owners substantially, banks now had a steady source of income pouring into their pockets. During a time of economic hardship, creating such an incentive meant an increase in home building which equated to the production of jobs – a much needed necessity at the time. (Note: I’m not saying a 30-year mortgage is a bad thing, I’m just commenting that it really is a long period of time!)

Looking at it from a prospective home owner’s view, this meant they could finally realize their dream of owning a home which often meant stability. Prior to such mortgages, home owners were typically wealthy (or at least upper-middle class) or much older since it would take them many years to save up enough money to purchase a home out-right.* Hence the American ideal of owning a home was created with the creation of the 30-year mortgage.

The need for homes meant more communities needed to be built and soon the American suburbs were created. Sprawling neighborhoods with the garage as the focal point of course (who can survive in the ‘burb’s with a car!) meant longer commutes to work.

Looking at home ownership from a glass is half full POV:

  • more homes > more jobs created > more stability for families > creation of equity (I’m purposely leaving out the idea of a “neighborhood” since urban cities have neighborhood’s too so this is a wash.)

From a cynical glass is half empty POV:

  • more homes > longer commutes > more debt > suburban sprawl > car dependent > less mobility in terms of moving out of a city or state

I’m sure some would argue that owning a home has many more benefits. But there are alternatives, and I don’t just mean renting. What about thinking ‘Out side the box’? Some alternatives include:

  • Purchasing an RV – there are some really nice ones out there. Of course, these are not inexpensive, to say the least.
  • How ’bout a tiny Tumbleweed home? It’s efficient and portable (they also offer plans for non-portable homes as well).
  • Living on a house boat – also not an extremely inexpensive option, but a possibility.
  • Commune living – I’ve never lived in one, but I can see some benefits – working as a community and sharing resources.
  • Nomadic wanderer – Maybe this one is a little eccentric, but if you check out Wandering Earl, traveling seems so romantic!

Are there some other alternatives I’m missing? Is owning a  home all it’s cracked up to be? As a renter, I’m obliged to pay my rent on time with no end in sight; obviously one major benefit it having a home paid in full, then all there is to pay are taxes and maintenance (hopefully!)

*Background information comes from American Radio broadcast


  1. youngandthrifty Reply

    As a recent homeowner, I would love to pay it off quickly, but I also don’t want to ignore diversification by putting money into investments. I think it’s all about balance.
    .-= youngandthrifty´s last blog ..3 Easy Financial Resolutions Every Gen Y should follow =-.

    • @Young and Thrifty – Balance is important. Did you end up with a 30-year mortgage? Or do you have other options in Canada?

  2. I agree with Young! I paid off my mortgage early, but at the same time I also put money in my 401K, and even trickled some money into my kid’s 529 plans.

    I admit, I wasn’t able to put much in my regular brokerage account though.
    .-= Money Reasons´s last blog ..5 Ways To Lessen The Duration Of Undesirable Events =-.

    • @Money Reasons – How much quicker were you able to pay off your mortgage? I’m just curious because I know you met this goal last year. I think it’s great that you now have this money freed up to invest in your brokerage accounts now!

  3. Sandy @ yesiamcheap Reply

    I’d pay off the mortgage first. I think that if people realized just how much they end up paying in interest on a 30 year mortgage, they would be obsolete. In just paying off the mortgage faster, the individual will have probably saved more than they could have made with investments.
    .-= Sandy @ yesiamcheap´s last blog ..Waxing- Screaming and the Bucket List =-.

    • @Sandy @YesIamCheap – The 30-year mortgage interest is scary! If you look at an amortization chart, it’s mind boggling that the interest is about the same amount as the house itself. I think 30-year mortgages should be revised to 20 at the minimum!

  4. Hi,

    I think it depends on the interest rate of your mortgage and what your investment options are. I have two 30 year mortgages because I financed 100% of the purchase price. The first mortgage is 6.25% while the second is at 8.375%. With the second interest that high, I’m paying that off as soon as possible. I’m slated to have this paid off my the end of 2011. Then I can refinance the 6.25% mortgage. While I’m repaying my second mortgage, I still invest into my compnay 401(k) plan.

    When I do refinance, I’m going to refinance to a 15 year mortgage because the amortization table for a 30 year is just tooo daunting.


  5. Squirrelers Reply

    You make great points about different geographic areas having different viewpoints. For me, living in the Chicago area, it’s easy to see how some areas are exceptionally expensive and people are cramped for space. It’s not a slam dunk that homeownership is the best route here – not at all, not in the last few years anyway.

    I have friends living elsewhere in other locales that have purchased new construction single family homes that cost them less than just the taxes on a townhouse in the Chicago area. Geography infulences opinions in that way, including how hit an area was by recent home price declines.

    As far as I see it, it’s great to get rid of debt as quickly as possible, and pay it down so that cash flow can be freed up for investing. That said, one must diversify and certainly keep an emergency fund.

  6. youngandthrifty Reply

    @Little House
    Nope, didn’t end up with a 30 year mortgage, though a lot of my friends and colleagues were telling me to get one and “pay it off like it’s a 25”. We got a conventional mortgage.

    I think we actually have 35 year mortgages, and we used to have 40 year mortgages and zero down mortgages.

    They recently scrapped the 40 year mortgages and the zero down mortgages.
    .-= youngandthrifty´s last blog ..3 Easy Financial Resolutions Every Gen Y should follow =-.

    • @Young and Thrifty – I’m glad they scrapped the 40-year. That’s ridiculous! I know banks were offering similar loans here in the US, but I’m not sure if they’ve done away with them or not.

  7. If I were starting out, I would only buy a house I could afford with a 10 or 15 year mortgage. I would also pay it down as quickly as I could (but not at the exclusion of other investments). Actually, that is what I am doing now. (We started with a 30 year mortgage and refinanced to 15 when rates dropped years ago. The difference in payment was negligible.)

    If I did not have kids, I don’t know that I would ever buy a home if my concern was conserving money. Houses are a giant money suck. There is no way that many homes are a good investment when you think about all the taxes, insurance, maintenance and repairs you put into them.
    .-= Everyday Tips´s last blog ..OK- Here Is A Revelation – My Kids Are In Private School =-.

    • @Everyday Tips – Thanks for sharing the ideas that homes are very expensive, minus the mortgage! I think some people forget it’s a never ending expense once you factor in taxes, maintenance, and repairs. I also think that financing (or refinancing) to a 15-year mortgage if you do own a home is a good idea.

  8. Well, I don’t necessarily recommend a life of non-stop travel as an alternative to home ownership. It’s not nearly as romantic as it sounds 🙂

    In fact, I’m writing this from a friend’s home in Melbourne, Australia where I’ll be staying for awhile, but due to a severe allergic reaction to their cat, I’ve spent a lot of time lately wishing I had my own home to enjoy!
    .-= Earl´s last blog ..Exhausted But Not Ready To Sleep =-.

    • @Earl – Thanks for clearing up the whole “romantic” vision I’ve been having as a nomadic traveler. 😉

      As for owning your own place, you should look into something that fits your traveling style, like the Tumbleweed home (I’m constantly mentioning these homes!) Though you couldn’t take it over seas, if you had a place to “park” it while you were away, you’d have your own place to come back to.

  9. That’s an interesting concept. I’d never heard of the Tumbleweed homes before but will take a look at the site. That’s the thing, even a small place to call my own would make a huge difference!
    .-= Earl´s last blog ..Exhausted But Not Ready To Sleep =-.

  10. retirebyforty Reply

    You can think bigger and get a duplex and rent one unit out. This is hedging your bet a bit because rental income will go up and can be used to help pay down mortgage. Later on, you can always move and sell or put up both units for rent.
    .-= retirebyforty´s last blog ..Never Stop! Michael Dyer’s Game Winning Run =-.

    • @Retireby40 – I’ve been thinking about this option a little more lately. It seems like a fairly safe one, as long as we’re willing to live in one of the units for a while.

  11. Ronald R. Dodge, Jr. Reply

    Owning a home vs Renting

    For me, it was a matter of what’s the total cost of owning a home vs what’s the total cost of renting based on our set of needs. For the longest time, renting the way to go, but then it came to the point, it switched over to owning a home as cheaper.

    As for the so called never ending expenses of a home. While this is partially true, it’s only really the case as it comes in stages. That’s one such reason why you look at homes first to be even sure if it’s structurally sound (especially if you have a family with kids that has to move into the home with you). As such, I had to make some choices.

    In order to capture these costs, I tell people to depreciate the “Land Improvement” portion of their property over a 40 year time frame from the time they purchased the home using the straight line method. As such, the accumulated depreciation as time progress serves to tell you how much money need to be put off to the side and invested in something, so as to be able to keep up with inflation and taxation. That way, as you do need the money, you can then get the money and use that money to do the needed repairs.

    Example: Our house, we have been in it for 5 years and about 7.5 months. Total accumulated depreciation on it is $14,235 on it. We at this point have put into it about $3,300. Basis of the property is $124,000 with $21,000 of it being on land, which land is NEVER depreciable.

    As for looking at the absolute numbers, don’t let that total interest payment over a 30 year period scare you. For us, we pay only 4.99% stated APR, thus much lower than most other people. Therefore, the rate has a bigger factor of when to pay down the mortgage and by how much than does the absolute dollar amount of the interest payment over any number of years. As such, you have to think in terms of how money works, not in other means that works against money.

    We also looked at the option of going with the 15 year route, but we are at a point it will be better to get the mortgage down to the point of getting rid of the MIP (Government version of the PMI) on it first, before refinancing it to the 15 year finance loan, if the rate on the 15 year remains low enough to make financial sense to do it with the closing costs associated with it. That’s also cause we also had a price drop on our area, though not as much as in some other areas in the nation, but still large enough to make a significant difference. The mortgage was set to mature by July 2035, but I have already paid enough down on it for it to mature by August 2032. This year, I plan on knocking off another 18 to 26 months worth from the mortgage. This will be no easy fete to do, but it’s what I plan on doing keeping in play our retirement funding goals as well.

    One option I may do, I may take the money I recently sold on stock that I made money on, use that money towards this goal in addition to the other money I have coming from both the vacation sell back and the tax refund money (Yes, we claim “EXEMPT” on our W-4 form every single year for the Federal IRS). About $2,200 of the tax refund is already claimed for by way of retirement contributions. The remaining $3,300 or so would be to the mortgage in addition to the $3000 from the stock sale and the $700 or so net from the vacation sell back. That would about do the trick to get rid of the MIP on the mortgage, which then reduce the monthly payment by $45.00 or so. Once the MIP is gone, I will then refocus my energy to upping the EF once again.

  12. Financial Samurai Reply

    It’s just accounting really. I’d pay a mortgage off upon retirement, but not before.
    .-= Financial Samurai´s last blog ..Should I Have Closed My Credit Cards =-.

    • @Financial Samurai – I guess each person has there own reasons to pay off their mortgage sooner than later. But I definitely agree that getting it paid before retirement is a must – who wants to be paying mortgage payments or rent, for that matter, when you’re retired?!

  13. @Suba – I know that we live in the same area, and yes it is super expensive here compared to the rest of the nation (minus NYC or San Fran.) My husband and I have been thinking of moving up north a bit, hopefully to a less expensive area, and that would give us a better chance of obtaining a 15-year mortgage over a 30-year. But we’ll see…..

  14. Practical Parsimony Reply

    In Alabama once a person reaches 65, the person is exempt from property taxes.

    • @Kay Lynn – Had I bought a home years ago, I would probably have done the same. My only aversion towards the 30-year now is the older I get, the more I realize I may be close to retirement or retired and still paying a mortgage. I really don’t want to be in that position. However, depending on where we end up buying, I might not have too many options. Unless of course I go extreme! 😉

  15. @TwentySomethingMoney – I hear you on the high mortgage. I also live in an expensive city and have been renting for years. Eventually, I will buy something, but it probably won’t be where I currently live (the traffic and smog are getting to me after all of these years!) I wish you luck on building up your funds through the stock market. I invest as well, but it’s on a small scale with a handful of particular stocks. I don’t think it would allow me to purchase a home outright, but it could help with a down payment.

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