3 Reasons to Consider NOT Paying Off Your Mortgage

by | szikov.ru

Over the years, I’ve noticed that one thing is certain: Markets will go up, and markets will come down. At times, your investments and businesses will follow suit. This is probably why financial planning and asset protection strategies exist—to protect us from those unpredictable market shifts.

Personally, I can’t stress the importance of risk management enough. It makes so much sense to me that investors or business owners would employ strategies to “sweep” their accounts and periodically take risk off the table by moving their capital into safer investment vehicles.

Despite the very real (for some people) emotional appeal of owning your real estate free and clear, from a risk management perspective, it probably comes as no surprise that most planners frown on the accelerated pay down of mortgage debt and usually prefer seeing their clients separate their cash from their properties.

In other words, planners usually aren’t big advocates for using your real estate as a savings account.

Still, it seems that many real estate investors ignore this concept, and instead they choose to leave their cash tied up in their properties as equity.

So, why the disconnect? Should investors consider adjusting their strategy?


3 Reasons to Consider NOT Paying Off Your Mortgage

1. Risk Management

In 1997, I moved to a nicer area outside Philadelphia and got a good deal on a property for $190,000. Shortly thereafter, it jumped up in value to $250,000 and I refinanced, and then again years later, I refinanced again. Eventually, I had a first mortgage for $354,300 and a home equity line of credit (HELOC) for $118,000. It was at the height of the market, the property had appraised for $525,000, and then BOOM, the market fell like a rock. Suddenly, I was lucky to get $400,000 for the place, and the bad news was it stayed there for almost 10 years.

Related: What’s Better Financially: Paying Off Your Home Mortgage or Investing That Money?

If I hadn’t separated my equity with the HELOC to use for other real estate and note deals or if I had paid down debt and had been forced to sell, I could have lost a lot of money.

A similar scenario happened when I bought a rental property, a cute 2-bedroom row home off an estate for $62,000 that cash flowed nicely, and then the market again dropped dramatically to where it was only worth about $35,000. Luckily, it still cash flowed, and I didn’t need to sell, but what if I did? Or what if my heirs did? They would have taken a pretty good hit.

2. Access and Liquidity

Another strategy is to keep your cash or money from equity in another safe bucket. For example, if you own $3 million in real estate with $2 million in mortgage debt and have $2 million in cash in bank accounts or other liquid investments, isn’t that much safer than using liquid investments to pay off the mortgage debt?

Remember that the bank even more than the borrower is at risk when a property is mortgaged. How does it serve you, from a risk-management perspective, to take the bank’s risk off the table and increase yours by paying down the mortgage?

And if you’re thinking to yourself, “OK, but what if I were to die and leave my heirs with this debt…?” Good question, but couldn’t it be addressed by a $2 million life insurance policy on top of your liquid cash?

3. Estate Planning

If you’re doing your family a favor by thinking ahead about estate planning, ask yourself: Isn’t it better to try to hold onto the real estate until after you pass on, so your heirs get a stepped-up basis? Don’t they have more options with the liquidity or cash in a safer vehicle and any insurance proceeds, as well as the option to keep, sell, or pay off the real estate you’ve left them?

For some crazy reason, my heirs really don’t want my real estate or landlord headaches. What they really want is the money or cash flow. So, does it actually help them when we pay our real estate off?

Related: Are Extra Mortgage Payments Worth It? A Look at the Numbers

After all, aren’t we just renting space on this earth while we’re here, anyway? I’m not so sure we ever really own our real estate. Try to stop paying your taxes and in approximately two years you’ll see who really owns it: the government.

So, when it comes to managing my own portfolio and finances, I’m a pretty firm believer in separating the cash from my real estate by putting my equity in safer, more liquid vehicles. That approach gives me access to the cash rather than some artificial equity number on a spreadsheet because “equity” (an artificial construct based on market psychology as much as anything) will rise and fall.

That said, I’m curious to hear other real estate investors’ thoughts on this topic.

Do you think it’s a good or bad idea to use your real estate as a savings account?

About Author

Dave Van Horn

Dave Van Horn is President at PPR The Note Co. – an operating entity that manages several funds that buy/sell/hold residential mortgages, both performing and delinquent. Dave has been in the Real Estate business for over 25 years, starting out as a Realtor and contractor and moving onto everything from fix and flips to Raising Private Money.


  1. Kevin Sapp

    Nice article Dave.

    As I tell the padawan’s at work before I retired. You can’t eat your house. If you owe 100K on your house and you have 110K in the bank. If you payoff the house and lose your job, how ya gonna eat after a few months? If you keep the 110K and lose your job, how long can you make payments AND eat for?

    What do you consider “safer more liquid vehicles”? Notes?


    • Dave Van Horn

      Notes are one of them. They cash flow, are backed by collateral, and they’re fairly liquid but I suppose liquidity is relative. Because of my network, I could probably sell a note of mine much faster than the average person, though the internet does make it much easier for everyone.

      I have some other safe vehicles/buckets including qualified plans, insurance contracts, and private money as well. There are also some short term investment funds out there too. But everyone’s knowledge, access, comfort level and risk tolerance is different for everybody.

      I understand why people pay down their mortgage. It’s not only piece of mind but it’s usually one of the few places where they can put their money. But my argument (and I think you agree, Kevin) is: even if you are going to pay it down, don’t put that equity to waste. At least take a line of credit out now, just in case you need to access capital later.

      Thanks for reading!

      • Katie Rogers

        Maybe you cannot eat your house, but if you keep a good balance between what is still owed and your emergency fund, you will likely have more than $10,000 in liquid cash when you do pay off that house, and you can eat what you had been spending on the mortgage. It is not a simplistic dichotomy.

  2. Tammy Vitale

    This is especially true for older folks (I count myself in that) because if you don’t have income, you can’t pull the equity out in a crisis. I say take the cash and buy another house while you can to create income through rent.

    • Dave Van Horn


      I agree with you in theory! I say go use the capital for another investment…but I wouldn’t necessarily say that investment should be property. The reason being: you could also use OPM (other people’s money – like private money or hard money) to fund the next house. At least that’s what I found to work best for me. That way I still get to buy more properties, and put my equity to work with other liquid investments.

      Thanks for reading!

      • Tommy Threadcraft

        This was an insightful piece Dave. I’ve thought of this before but usually don’t give decisions like how to pay down debt as much thought as I should. I just plan to do it slowly but surely and if I ever do pay of a mortgage I plan to live their and/or cash flow the property for years before I consider selling it. Either way, since you mentioned more liquid investment do you have any good articles on notes and how to invest in them? And also what do you mean by insurance contracts? Would love resources on those and how they work as well if possible.



  3. John Murray

    Like all successful investors that are multimillionaires diversification in investments are key. Using multiple revenue streams is essential for wealth building. The savvy investor uses tax burden as the barometer of how assets are maximized to reduce tax liabilities. If the house you live in reduces your tax liability it is an asset, if it increases your tax liability it is not an asset. Refinance, passive stream, acquisition of property and offsetting portfolio income a personal abode can benefit if the numbers crunch positively. In a nut shell if it is an asset maximize the tax benefit, if it is a liability make it an asset or dump it if not.

  4. Melvin Plummer

    I realize that everyone is different, but I personally would rather own ten houses free and clear than to own twenty-five houses mortgaged to the hilt. Similarly, I would rather make $250,000 a year working 15 hours a week than to make $500,000 a year working 70 hours a week. I just enjoy working within my own comfort zone. Most people function in one of 3 stages. Stage one is (financial freedom). When you reach that level, you will know it. Stage 2 is (personal comfort zone). There is a personal comfort zone for everything. For example, if my checking account falls below a certain amount, it threatens my comfort zone. The third stage is (ball and chain). In this stage you feel like you are carrying the weight of the world on your shoulders. It’s almost like a house of cards that can collapse at anytime.

    • Lewis Christman

      I would split the difference. 250,000 a year working 15 hours a week yet I want the 25 houses mortgaged to the hilt. Between the income and cash flow (they all need to be positive cash) I would pay them down as quick as possible. All cash flow applied to lowest balance first and keep rolling it to the next property. I agree with your 3 stages

    • Dave Van Horn

      Hi Melvin,

      I think we’re both in agreement when we say everyone is different. In one of my comments above when I noted that knowledge, access, comfort level and risk tolerance is different for every investor so it’s tough with articles like these because what might be right for me, might not be right for you.

      That being said, I hope my article doesn’t suggest readers mortgage themselves to uncomfortable amounts or to a point where they consider this to be “a ball and chain” attached to them. What I’m merely suggesting is to not let your house become your savings account because it’s too RISKY.

      That risk being: if you pay off your house and it falls in value, you could potentially have wasted all that money you spent years putting into payments. So say I were to pay off a $150K house and it drops to 130K, and for whatever reason, I’m forced to sell…then i lose 20K (and I would have lost all the potential money I could have made if I had chose to work my equity). Same goes for my heirs if the property had fallen in value and were to pass on to them. It’s that much less money they would have.

      I also deal a lot with Bankruptcy and Foreclosure in my day-to-day business, and I also see where having an equity line could serve as protection to your assets in the event of a lawsuit, bankruptcy or foreclosure. So say you have a 90% line against your property, even if you have a zero balance on it and don’t use it, in any of those three above mentioned events it looks like your property isn’t worth taking to these potential creditors or parties. So even if you DON’T USE IT to invest with, an equity line on your property can be very valuable in such an event.

      So did I convince you yet? Maybe not…but I figured it was worth one last try 😉

      Thanks for reading Melvin.


      • Melvin Plummer

        Hello Dave,
        First of all, I would like to preface what I am about to say by saying, I have a 850 FICO score, please be clear that I’m not saying this to brag, but only a little more than one half of 1% of the American population have a FICO score that high. My wife also has an 850 FICO score. Only 1/80th of 1% of the population of married couples have reached that level. I just want to explain what happened to myself and my wife during our real estate investment career. Keep in mind, we did nothing wrong!
        Several years ago, my wife and I purchased 18 single family houses in an 18-month period. We financed these houses using 5-year balloons amortorized over a 30 year term. We did not want to use five-year balloon notes but that’s all that we could find at the time. Our objective was to increase our net worth using rental real estate. We were able to get all of the properties rented and all were cash flowing nicely.
        My accountant sent me a letter saying that my net worth was over one million dollars and that was music to my ears. So I purchased more properties for a total of 29 single family houses and two duplexes. I think the biggest mistake I made was to finance too many houses at one bank. At the end of the five-year term, we had no problem refinancing the houses for the second five-year term.
        60 days prior to the end of the second five-year term, the bank sent me a certified letter saying that they would not refinance my loan again. They told me that they were trying to reduce their exposure and that I would have to find another bank in 60 days. Keep in mind, I was never late with a payment nor did I ever miss any payments. In the meantime, the market dipped and I couldn’t refinance the loans through another bank. I was livid, I had done nothing wrong, I maintained extraordinary credit, the only thought that was spinning around in my head was these people are going to force us into bankruptcy.
        Disaster creates the master!
        I desperately called the bank and asked to meet with the president of the bank. A couple of days later his secretary called me and told me that he would not meet with me. I really didn’t know what else to do. A few days later, I decided to call the bank again and see if I could meet with the vice president. He decided to meet with me. I went to the meeting prepared,outlining everything that I was going to do and explaining to him that I had never been late, never missed a payment and to please allow me to refinance for one more term. He told me that he would let me know his decision in a couple of days. That was the longest two days of my life. After the two days passed, I got a call from his secretary saying that the bank agreed to refinance the houses for another five-year term. I can’t even explain how relieved I was when they told me that they would keep my loans. I told my wife that we had given them too much power over our finances. So we had to come up with a plan. We decided to cut all expenses to the bone. No more holiday celebrations, no vacations, no eating out. We sold several houses. We even house hacked for $2,700 a month. Five years later every single house was paid in full. I’m not saying this to bad mouth banks. I think that credit is the greatest privilege available in this country. I say use bank’s until you lose bank’s, but never abuse banks. I still invest in real estate but I cherry pick and the bank doesn’t have the power, I do!
        To end this, I hope that this helps at least one person and if it does my message was worth it. I’m not telling anybody how much debt they should carry, I’m just saying, I got hit with a sucker punch that I didn’t even see coming.

        Dave, I wish you peace and great happiness!

        • Dave Van Horn


          I appreciate you telling this story. And I’m glad that in the end, everything seems to have worked out for you and your family.

          It sounds like the financing you had was (or was similar) to a commercial loan that recasts every 5 years or so. I’m actually not a big fan of this type of financing and have even written previous articles about it. It’s actually why i prefer buildings less than 4 units (so its residential financing), or larger properties (70 to 100 units+) where they don’t require you to personally sign.

          But this is precisely why I’m writing this article. If you did lose all 29 properties in your scenario and you had paid them down significantly up until that point, you would have lost ALL of that money you put into them over the years. This is why I’m a fan of separating and leveraging the equity from my properties, periodically.

          Plus by doing what I’m suggesting, it doesn’t require one to cut expenses to the bone. It’s really just a way of utilizing arbitrage to make even more money while protecting your assets. And I am actually not beholden to the bank because of this. In fact, I’m BEING the bank in my scenario since I’m drawing on my equity. When I pay down the property, the bank is in control and in safer position. When I’m separating the equity from the property, I’m in control and the bank is the one at risk…not me.

          There’s two books I really like on this subject, if you’re interested or if perhaps I’m not doing topic enough justice in my comment. The first is Missed Fortune 101 by Douglas R. Andrew and The Banker’s Code by George Antone. Hopefully these and my comment might be able to widen your perspective on equity.


        • Melvin Plummer

          There are temporary millionaires and there are lifelong millionaires. There is temporary debt and there is life long debt. There is temporary self-discipline and there is lifelong self discipline. Twenty five percent of all homeowners own their houses free and clear. The lessons that I have learned from these banks are priceless and I am extremely grateful. God bless the banking system and God bless America!

  5. Jerry W.

    You are one my favorite writers. You have a depth of knowledge that very few who post here can equal. I am however struggling with the concept of safer to pull equity out. I really get the opportunity cost of leaving your equity in a property. I find myself arguing that pulling equity out is much more risk than leaving it in when it comes to a down market. If I owe $200K on a property worth $300K then the market value drops to $150K I am in deep trouble. Nearly every mortgage I have seen have clauses allowing the mortgagee to call the note for things like that. If they call the note and you have to sell fast you are going to lose even more money as fast sales in dropping markets sell for even less. You have also developed a business with less work and more return doing note buying. This means the value of unused capital it pretty expensive for you. Folks who would put money in CD or even the stock market don/t have the loss from unearned capital as you do with notes that may make you a 18% return, or at least a 14% return. If your mortgage is paid off the bank cannot force you to sale. Bankers panic like stock brokers or other folks when the market gets hit they get worried. Another factor you have not mentioned is rising interest rates. I have paid from 18% to 2% for money borrowed from a bank. Take out a $200K mortgage on a 20 year loan at 4% then have it renew at 6% and your payment just jumped about $200 per month. That can actually turn a money making property into a money losing property. If you have already pulled equity out you are in trouble if you have trouble liquidating assets to pay the mortgage down or off. My last big mortgage for me was 3 years ago on a $250K loan at only 4% on just a 15 year mote, with a 5 year ARM, I actually have done some ARMs of only 3 years. The loan I sign for on Monday will be at 5.75%. It is very likely that the rate will go up to 6% in the near future. Do that increase of 2% on a million dollar loan aggregate, and your payments go up $1750 per month or so. Knowing I have several loans come due for rate adjustment per year I often have several properties with lots of equity. If need be I can refinance one property with lots of equity and pay off the balance on 3 or 4 other properties, and those payments go away completely leaving one large long term loan, instead of 3 or 4 loans with only $10K or $20K owed on them. That can offset a $2K increase in monthly payments pretty quickly. The margin of profit on your properties also can play a big roll how dangerous pulling your equity out is. When you are happy with a $100 per month net on your properties and your payment goes up $200 per month you are in trouble.
    So what I am saying is lost opportunity on money in a mortgage is a valid point, but risk of loss also needs to be considered. Thanks for writing the article. I will think on it some more.

    • Dave Van Horn


      In the first scenario you gave, you’d only maybe be in hot water if you had to sell the property. And if you did, that would be considered a short sale. But You’re assuming that you have to bring that $50K to the table in this event. And actually, if you took that $50K and put it in a safe bucket like an IRA accoun, insurance contract, or a family trust and invested with it (or didn’t invest with it even), they wouldn’t be able to come after it.

      The bank also usually doesn’t call the balance in full. They usually term you out and you’re on a fixed payment plan.

      I’ve actually have had banks reduce my line but if the line is already drawn, they can’t take it back. I had a 11 lines of credit open at one point before the crash in ’08. I accessed 10 of them to the max and when the market fell, I had money to use for real estate whereas many other investors i knew struggled to find financing.

      You’re right, the banks can’t force you to sell if your property is paid off but if you’re destitute and can’t pay your taxes, the government can. So it’s relative in my opinion. Why not use the equity if you have it? And notes certainly aren’t the only investment, you could also put it to work in a myriad of other that like a hard money or apartment fund for instance.

      Hope this answer can give you more clarity. But if it doesn’t, feel free to ask more questions either here or via PM.

      And as always, thanks for reading Jerry! Sometimes I think you’re my number one fan.


  6. Jerome Kaidor

    I have been having similar thoughts. Right now, my portfolio is around 25% LTV and paying principal at a furious clip. I am planning a cash out refi for one of my buildings to generate a bunch of cash – which I plan to throw back into my properties. A roof here, a paint job there, an earthquake retrofit there, a repipe…. it all adds up. I’m hoping that with some aggressive capex spending, I can make my properties perform better – because they’ll be prettier and everything will work.

    And the refi will have a tax benefit, because for this building I will be paying mostly interest – instead of mostly principal.

    If OTOH I took the money and threw it into the stock market, the interest on that particular money would no longer be tax deductable on my schedule E. Or so my tax man tells me.

    • Dave Van Horn

      Thanks for commenting Jerome!

      It all depends what master you’re trying to serve…whether it’s taxes, additional cashflow, asset protection, etc. No one can fully answer what’s best for you, except for yourself. This article is merely meant to get that discussion started.

  7. Michael Steven Harris

    The problem with mortgages and HELOCs is what do you think can and will be called in a down market. You own the property true but what if what you can rent it for collapsed. Rents my head up long term but there are huge variations and don’t think the bank or other can’t pressure you to sell in a down market. Just my two cents.

  8. If you did cash out/Refi, etc, are you not still personally responsible for the mortgage debt if you let it go back to the bank, if you have cash available in other bank accounts? Can’t the bank/lender go after that money you have liquid?

  9. Paul Rosas

    I’m wondering if anyone has heard or knows about a program that is promoting to replace your first mortgage with a HELOC and that way you will have access to a credit line and you can use it as a savings account. Here is a you tube video.
    I am hoping that I can use this or something similar as I am about to build a house and would love to convert the construction loan in to a HELOC instead of a traditional mortgage. I also have a rental with about 100k in equity that I would love to access but my local banks and credit unions have denied due to it not being my primary residence. This guy called me and tried to sell me a self guided program for several hundred dollars. I would appreciate if anyone can shed some light on this. Thank you in advance for your help!


  10. Alden Simpson

    Great Job Dave,

    Being an Investor, I understand and go by your advice. But I enjoyed reading your article and I think you articulated your point very well. Anyone from any spectrum of understanding finances would be able to comprehend your point. Articles like your are intended for people who don’t know or understand the value in your information and upon reading it should take great knowledge from it, but if its too complicated it may go over someone head.

    Great Job.

    • Dave Van Horn

      Hi Alex,

      Thanks for chiming in!

      What your’e saying makes more sense to me with your primary and when you have no other investments that pay a higher return than the interest rate on your deductible mortgage.

      But on a rental property, I would hope your tenant is paying it and your writing it off! At least that’s the idea. Plus you can put your money to work into safer more liquid investments. That way you could literally do DOUBLE the deals.

      That’s my argument. Did i sway your opinion?


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