I just made a very big move towards Financial Freedom in my life. This was not an easy decision to make and It has always been in the back of my mind. I have put countless hours of thought and calculations into the right move and decision. Time and time again my emotions and less risk averse side pointed me towards this direction. As of Friday, I will have no more mortgage payment! This again was a very hard move for me to make. I had to sell 3/4ths of my portfolio to achieve this goal. I watched my annual expected dividend income get slashed from $10,638 to $2,706. My portfolio was also reduced from $200,000 to $47,238.
This was a massive move for me to make and it wasn’t an easy one. I know that it is for a good purpose but it was very difficult parting with so many loved positions of mine. Some of the positions I sold off have been held by me for over three years. This was a good move however. The more and more it sinks in I feel more relieved that I made the right decisions and to know that I’m never going to have to ask myself, why didn't you pay off the house? It is going to make every recessionary cycle I experience In my life ten times easier to weather. But at the same time, the more it sinks in, the more at ease I feel that I’m never going to have to pay a mortgage payment on this house. Next month is going to roll around and I’m going to have that extra $898 in my bank account that I’ll be able to use for investing!
As stated above, I worked the numbers over and over again with different scenarios and mathematically, keeping the $200,000 invested and paying the mortgage had the higher return over 30 years. So if keeping the monthly mortgage payment and keeping my money invested was the better move, why then did I sell 3/4ths of my portfolio to pay off the mortgage? I’m not one to take huge risks hence why I love dividend investing. with having such a large portfolio it was amazing watching $30,000 literally vanish over the month in December when the markets were in a free fall. Mind you, I didn’t sell or lose any money and the market did end up rebounding and bringing my portfolio to new highs. This scenario really opened up my eyes, what if the next recession hits, my portfolio value dropped in half, companies started slashing dividends and I’m stuck deep in the red for many years? This isn’t that unlikely of a scenario but we did experience something similar only 10 years ago during the housing crisis. I know what all of the dividend investing community is thinking now, well the aristocrats have continued to pay increasing dividends for years so it’s doubtful many of them will stop. Although this is a very probable statement, dividend cuts are real and past performance doesn’t guarantee future success. Just look at the most recent dividend cuts, KHC, KMI, OMI, GE and PNR were some of the biggest.
Another really big factor that made paying off the house easier is the fact that I no longer qualify for deducting my mortgage interest on my taxes. Due to the increased standard deduction which is an amazing benefit for my taxes, I’m however no longer able to qualify for that deduction since I don’t have enough deductions in order to itemize any longer. This has always been a big pro that many advocates of keeping a mortgage have argued in favor of keeping it. Without getting that deduction from here on out it made it that much easier for me to decide to sell my investments to have no mortgage payment.
Investing in solid dividend growth companies are one of the most safe and reliable forms of investment income but we can’t control external factors or the price of the shares. This was a huge influencing factor for me to choose to pay off the mortgage vs keep on going down the path I was going. Doing the math also, by paying off the mortgage I’m essentially freeing up $11,868 per year that was going towards the mortgage. I was paying PMI of $98 per month, $196 was going towards principal and the rest was going towards interest. This is a huge chunk of extra money that I’m going to be able to put right back into the market. Yes, I’m essentially starting over again at $50,000 but I’m still light years ahead of my peers. After running more calculations I actually anticipate that I’ll be back to where I was prior to paying off the house in just 3 short years. That basically means I’ll be able build my portfolio up by $50,000 per year on average.
No one knows the future and nothing in life is guaranteed except for death and taxes. Paying off the mortgage was one of those guarantees for me and it feels good to know that one of the single biggest expenses in my life is no more! It’s going to be fun to see what affect this has on my Independence fund and to watch my funds build up even quicker. It is a life log experiment and hopefully I can continue to inspire and pump out some amazing articles about how this situation is going to perpetuate success in my life.