Home Free: How the Forty Percent Live

by | May 1, 2024 | Affordable Housing, Fort Wayne Media Collaborative | 0 comments

Fort Wayne homeowner Kate was surprised to discover how she felt when she made the last mortgage payment on her home. “I thought the day I paid off the house would be the best day ever, but it is really the next month, when you don’t have to make that payment and you suddenly realize how much money you have to spend on something else.” 

At first she devoted her extra money to fixing up her house, but once those tasks were done, her options expanded. “Now we have money to go on vacations and relax and look toward retirement with less stress. My husband says that this house is our guarantee that we won’t have to eat cat food,” she joked. Their home has nearly tripled in value since they purchased it in 1996.

She recommended making a full commitment to the home and its location to make it into a forever home. “I have considered myself geographically fixed since the day I bought my house. I knew that if I wanted freedom later in life I had to plant my roots and stay put. Think long term. Can I live here for a long time? Can I raise my kids here? Can I retire here?”

Kate plans to remain in what she calls her quirky house. “I can’t imagine a place that would be worth taking on a payment. I am no longer worried about resale. If I want to take down a wall, it’s gone. If I want to paint the living room red, it’s red. I converted the tiny garage into a hot tub room. That is the kid’s problem when I am gone. They are taking me out of here feet first, and until then, I am not worrying about if it affects how it will sell. I don’t care.”

Almost forty percent of US homeowners are mortgage-free. According to Bloomberg’s November 2023 article, many of these homeowners benefited from refinancing when mortgage rates were at historic lows, and more than half of these homeowners are at or past retirement age. 

According to Indiana census data, 34.8% of homeowners did not have a primary mortgage or loan on their house in 2021. Given that the median price of an owner-occupied Hoosier home was $158,500 then, this made a huge difference in the owners’ monthly expenses. At that time, the median cost per month for a home with a mortgage was $1,206, while owners without mortgages only paid $440 per month. National estimates were slightly higher than Indiana’s. 

Mortgage free home that belongs to Carla.

Several more Fort Wayne homeowners shared their experiences about living mortgage free. Carla, a homeowner in the 46807, purchased her home in 2005, before that neighborhood was fashionable. She said, “Our home now is worth more than twice what we paid for it. That could be seen as a reason to sell, but we do like living here. I tend to be a person who looks to make what I have work, rather than looking for something new, and so we’ve certainly saved money that way on fixing up what we have instead of upgrading to a new place.”

She recognizes that she’s had many privileges that led to paying off her home, such as the opportunity to go to college at a lower cost than today’s students have to pay to prepare for her career. Being married and in a two-income household also affected their financing options. “We could access reasonable loan rates and get a good deal.” 

Approaching homeownership with specific goals in mind helped them select the right house. “For us, buying a smaller, older home with a lower payment allowed us to pay it off faster. That may be harder to do in the current housing market than it was nineteen years ago when we purchased this house, but I still think buying more modestly is a useful approach.”

Carla noted that, aside from having their housing secured, a major benefit of having their home’s mortgage paid is the ability to spend money on other priorities like education and retirement savings, along with the perennial favorites of homeowners: home repairs and upkeep. 

In some regards, recently divorced Fort Wayne homeowner Laura sees the freedom gained from having her home paid off differently. She said, “The fact that I did not have to obtain a mortgage on my own and was able to keep my home as part of the division of property has given me the security to know that I have money to spend on travel and leisure activities rather than a mortgage payment. It was really important for me to not have to worry about a mortgage as I near retirement.” She advises homeowners who’ve purchased their forever homes to review their mortgage’s amortization chart. Once they understand how much money goes to interest payments, especially at the beginning of a mortgage, they may be inspired, as Laura was, to make additional principal payments and reduce the length of time—and the amount of interest—needed to pay off the loan. 

Finally, when Fort Wayne homeowner Vicki received an inheritance a few years before reaching her retirement age, she and her husband consulted with their financial advisor who worked for the major financial company where they banked and maintained a small investment account. After they supplied their financial data to the advisor, who fed it into the bank’s algorithm, the answer was clear. “The algorithm said to pay off our mortgage, so we did. For retirement, it was a no-brainer for us,” Vicki said. The advisor was incredulous, however, as he thought the best place for those assets was the stock market, but Vicki and her husband decided to take the algorithm’s advice. At that moment, Vicki remembered a question she’d meant to ask the advisor for years. “I asked him, ‘Do you have a fiduciary duty to us?’ and he answered with, ‘I don’t know what that means.’” The next day, the bank called to let them know that they had been reassigned to another advisor; in other words, their original advisor had dropped them as clients after they questioned whether he was acting in their best interest. This inspired Vicki and her husband to move their investment account away from that bank. “We still have a bank account there, but we no longer invest through them,” she said.

To explore how “the forty percent” became mortgage-free throughout the US, we also spoke with mortgage free homeowners outside of Indiana.

“Everybody has different advice they grow up with,” said Karla, a Southern California homeowner who owns her home free and clear. Years ago, coworkers and friends advised her to buy the most expensive house she could afford, but she and her husband made a different choice. “I say, buy the most minimalist thing you can afford and then stay there. That’s what makes it more affordable. Health insurance is enough to worry about!”

However, she noted that staying put comes with a cost. Buying a home and paying it off keeps a household grounded in one place. It’s not necessarily the best option for those who have to change jobs often, or who need the flexibility to relocate to be near family. It also influences how the homeowner can live. Karla added, “I have to work in Southern California, and that means I could have a potentially really long commute.” She aims to retire early, a goal more within reach now that she and her husband have paid off their mortgage. 

After they purchased their home in 1997, they researched ways to keep their payments affordable. Their original financing was problematic for a few reasons: the bank had a position on climate issues they found to be unethical, they had to pay private mortgage insurance (PMI) because they had less than twenty percent equity, and they had a variable interest rate loan. They decided to refinance to a fixed rate loan to stabilize their payments and work toward paying the mortgage off, at first to eliminate PMI. “I made extra principal payments whenever I could and it was like a savings account for me. It was all about saving money.” 

Paying down their mortgage also meant that they had to avoid temptations in the form of home equity loans or lines of credit. “They make it super easy to refinance. That’s a very tempting way of not being able to pay it off. Although, now that we’ve paid it off, we don’t have that way of doing home improvements.” The money they used to spend on their mortgage tends to be spent one way or another, though. Once their mortgage payments ended, it was time to address some deferred maintenance issues. Most recently, they’ve added an earthquake brace and bolt retrofit (subsidized by the State of California) and addressed plumbing repairs for their home, which is now over 100 years old. They plan to look into other improvements they may qualify for through the Inflation Reduction Act, specifically for electrification through Rewiring America.

Karla also mentioned that tax write-offs changed with the Tax Cuts and Jobs Act so that the standard deduction may be higher than the combined total of itemized deductions, even for homeowners that include mortgage interest. “Once we couldn’t deduct the mortgage, it made it easier to pay it off.”

Like many homeowners with no mortgage, Karla and her husband are unlikely to move… ever. “Moving would mean a higher house payment and significantly higher property taxes, courtesy of California’s Prop 13.” Despite the much higher value it currently holds, selling their home would force Karla and her husband to find another home at the market rate, and any borrowing would have to be done at the current interest rates, which are higher than they ever paid toward their mortgage-free home. 

Married since 1986, Gary and Susan of Gainesville, Florida, have owned four homes together: a starter home, a bigger home full of kids, a downsized condo, and a right-sized home for retirement. Once the countdown to retirement sped up, their preparations increased for this new chapter of life. As a two-income household, they tackled big expenses like kitchen and bathroom renovations, plus a new roof and air conditioner, prior to retirement.

Becoming mortgage-free was their top priority, and Susan explained how they did it. “Pay double principal every month. It’ll greatly reduce the length of your mortgage. If you can do it, I’d recommend it highly.” 

However, not everyone appreciated Gary and Susan’s financial strategy. Many said they were missing out on stock market gains, and that perhaps they’d be better off taking longer to pay off the house while investing more in their retirement accounts. Both disagreed with that sentiment. 

“We’re not aggressive investors,” said Gary. “We’re risk-adverse. We value security, and having a house paid off is security, over potential income.”

Susan said, “You can’t know that you’re going to make money investing. You might. You might not. I’d rather have the house paid off first.” Though both are in good health and enjoy an active lifestyle, they also consider being mortgage-free to be helpful when considering the future. “Being a homeowner is our insurance policy against old age, as far as long-range health problems, if the house needed to be sold to pay for something. We don’t have long term care insurance, and most people don’t.”

Their downsizing experiment—buying a condominium—added expenses to their budget that they didn’t anticipate or want, and it made them reconsider how they wanted to spend their retirement.

“We joke,” said Gary, “that we had to go to a smaller place so the kids couldn’t move back with us, but we found out that if you had a house that small, you didn’t have a place for grandkids to play. We were very fortunate to get out of that (condominium). We had no control over its homeowners fees, and they just went up and up and up.” Their last move brought them closer to town, their regular grocery store, and their church, plus gave them more stability in managing their budget on a fixed income. But while they’ve left behind the climbing fees from their former condo association, they still have to pay for homeowners insurance. Unfortunately, like most Floridians, their home insurance bill has tripled since 2018. 

Still, they understand how lucky they are to be mortgage-free, especially when considering what renters pay. Susan said, “Most rents would be more than our mortgage was, when we were still paying on the house. I feel really sorry for people, even with two incomes, that have to sock away that much money every month, especially with the prices of groceries going up so much. It’s a lot of outlay if you don’t own your home. Some people have to worry every month if they’re going to make their expenses.”

Gary added that moving out of their small condominium and into a modest-sized home also brought them an unexpected benefit: after seeking to keep their children from moving back home, they now have a 19-year-old grandson living with them while he studies at the nearby University of Florida. The irony isn’t lost on either of them. “It’s fun having a kid back in the house and getting a taste of his college life,” Gary said.

Though the homeowners featured in this article live in different places, their advice was consistent throughout. The path to owning a home free and clear is based on a few basic guidelines: Buy an affordable home. Decide to stay in that home for a long time. Use fixed rate mortgages to ensure that minimum payments are the same amount each month, and pay more toward the principal as often as possible. Resist the urge to borrow against the home’s principal. 

The rewards are clear: mortgage-free homeowners have a place to live for as long as they need it, and aside from upkeep, taxes, and insurance, they’re free of a monthly payment. For these folks and nearly 40% of Americans, the choice to buy a forever home and pay it off as soon as possible has provided them with a large degree of freedom and security.

Author

  • Gabi Lorino

    Gabi Lorino is a writer, editor, and organizer of people and words. Her feature articles and short stories have been published in newspapers, newsletters, magazines, websites, and books. She has self-published one book, A Magical Time Called Later, in addition to a journal series, and has edited short story anthologies.