I Paid Off My 2.875% Mortgage…Dave Ramsey Was Right
Graham Stephan
A change of heart on mortgages 0:00
Graham says this video goes against everything he has said before. After years of telling people to keep low interest rate debt and invest the difference in the market instead of paying it off, he recently paid off three mortgages as low as 2.875 percent and felt a weight lift off his shoulders. He asked on Twitter if anyone ever regretted paying off a low interest rate mortgage, and out of nearly 4 million views and 1,500 replies, almost nobody said yes.
From debt averse to debt strategist 1:31
Growing up, Graham was taught that all debt was bad and that anything you could not buy in cash you should not buy. At 21, after saving commissions as a real estate agent, he tried to buy property in Los Angeles around 2011 but was instantly denied a loan because he had no credit history at all. That rejection flipped his thinking, and he decided debt was just a tool, so he spent the next few years building credit and eventually locked in mortgages as low as 3.375 percent, 3.125 percent, and 3.6 percent on properties in West Los Angeles.
The math behind cheap money 4:01
Graham explains that the only thing that matters with debt is the spread between what you borrow at and what you earn. If he borrowed at 5 percent and invested at 12 percent, he kept the 7 percent gap on money that was never his. He gives an example of a 600,000 dollar duplex bought with 20 percent down at 3.125 percent interest, earning 8 percent net from rents, which alone produced a 4.5 percent free return, and once appreciation was added the total return reached 25 percent. He used this strategy for about a decade, treating fixed 30 year low rate mortgages as safe because inflation was quietly eating away at the debt.
Peace of mind after paying off debt 8:00
After selling the properties with the 2.875 percent mortgages and watching the debt figure on his Rocket Money account drop by millions, Graham felt an unexpected sense of relief even though he knew mathematically it was the wrong financial choice. He found research showing that after paying off debt, nearly all people reported feeling less anxious, making better decisions, and performing better on cognitive tests, and this held true for high earners too. The effect came not just from the amount of debt but from the number of separate accounts, no matter how small or low interest. One study he cites found that how people felt about their finances mattered as much to overall happiness as their job, health, and relationships combined.
Balancing cash and payoff decisions 12:00
Graham cautions that paying off a mortgage with every last dollar is not wise either, since another study found cash on hand predicts life satisfaction better than income, investments, or net worth, and money put into a house is hard to get back out. A Journal of Public Economics paper found that about 38 percent of households paying down mortgages instead of maxing retirement accounts were making the wrong call, costing them 11 to 17 cents per dollar. His order of priorities is an untouched emergency fund first, then any employer 401k match, then high interest debt like credit cards, and only after that consider paying down a low rate mortgage if peace of mind matters to you.
What it all comes down to 13:32
Graham says people handle debt differently and neither extreme is wrong, whether someone is comfortable with huge debt or cannot stand even a car payment. For himself, constantly optimizing every rate and every spread has stopped feeling enjoyable and started feeling like another source of stress, so if he moves again he would strongly consider paying off the mortgage early. He still agrees that mathematically it makes little sense to pay off debt under about four or four and a half percent, but he now believes the mental clarity of being debt free is a benefit that is easy to underrate.
AI-generated summary. It can be wrong or incomplete - check anything that matters against the original.
