REAL ESTATE

Why the Guy Who Paid Off His Mortgage in 3 Years Isn't as Smart as You Think

mortgage-payment-calculator

mortgage-payment-calculator

You've gotta hand it to Sean Cooper: In a mere three years, this Toronto homeowner made epic sacrifices to pay off a $255,000 mortgage on his $425,000 house. His reason: "For a lot of people, their mortgage is like a life sentence," the 30-year-old explained to the press. "I just wanted to not have a mortgage hanging over my head."

After his story broke in publications like the Toronto Star and The Hamilton Spectator, thousands applauded this feat of frugality.

But some experts say the opposite -- that Cooper made a colossal mistake.

Forget the fact that to pay off his mortgage, this pension analyst took on two extra jobs (including in the meat section of a supermarket even though he's a vegetarian) and worked over 100 hours per week. Let's also set aside the fact that he stopped using his car and claims Kraft dinners were his "best friend" (because clearly his real friends stopped hanging out with him). No, experts argue that Cooper's extreme mortgage-paying regimen may have actually damaged his financial health.

"Timely mortgage payments boost your FICO score," says Kurt Westfield, founder of WCE Equity Group. After all, any yokel who happens to be sitting on a pile of cash -- thanks to a trust fund or windfall inheritance -- can throw it at a house. But it takes perseverance to pay off a mortgage over 30 years, and this payment history is a boon if the day arises when you need to apply for more credit, whether it be for a budding business, your kid's college loans, or unforeseen medical bills due an illness in the family.

Then, there's the fact that with all that money going to his mortgage, Cooper was most likely neglecting other financial priorities -- like his retirement.

"With interest rates at a historical low, the math is fairly straightforward," explains Shane Ray, a Realtor in San Francisco. "If you're paying an interest rate of 3.5% on a mortgage and you pay it off, you've saved that 3.5%. But finding investments that have an annual return of 6% or more isn't difficult. So if you take that money and place it in a higher return investment, you're walking away with 2.5% more than you would have if you'd paid off that mortgage."

There's a reason mortgages are called "good debt." Cooper, however, treated it like a disease.

"Having a mortgage is not really such a bad thing," says David Reiss, Research Director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. "When you think about what a mortgage is, it makes sense to pay it off over a long period of time. You use a mortgage to buy something that will last a long time -- a home -- so you would probably want to spread the payments for that expensive thing over the whole period you're using it, just as you would with a car. This may work for him, but not for the typical person."

So if you're inspired to follow in this guy's footsteps, think twice and consider less drastic measures.

"There are less extreme ways of doing this: Some people make payments every four weeks instead of every month," says Reiss. "This results in one extra payment every year and does not seem so painful. Others will put extra payments into their mortgage -- a tax refund, a bonus, money from a consulting gig. This is also less painful because you were probably paying your regular expenses without that money already."

Bottom line: Don't beat yourself up for having a mortgage. Embrace the benefits, relax and live a little. Cooper, for one, is now playing catch-up. Now that he's debt-free, he's moved on to his next goal: He's looking for love. Because let's face it, most bachelorettes aren't into eating Kraft mac 'n' cheese on a date.