Wife and I were considering paying down the mortgage in short order, for the psychological wellbeing of having a paid off house. Then I started questioning how much does it hurt us financially and how much does it slow us down towards our quest for Financial Independence to have those un-Mustachian warm and fuzzies. If the math on paying down a mortgage is flat out bad, can I reset our psychology to reflect reality so that we feel psychologically better by having a mortgage and a larger portfolio. I think we all intuitively know that with mortgage rates as low as they are, it makes more sense to have a 30 year mortgage and invest in building our portfolio, but we excuse this behavior by letting emotions rule over math. Sounds very un-Mustachian to let emotions overrule math, but it happens all the time. So with that being said, I need some help in creating the model to do the math.

Has anyone done the math to show the impact if you pay down/pay off your mortgage v.s. investing the money into mutual funds or other investments? Is there a calculator that shows your FI years and how many years it adds to your FI point if you pay off your mortgage vs. investing?

For an example I was looking at a fictitious $300,000 mortgage at 3.5% interest rate and $1,500,000 portfolio vs. a paid off house with a $1,200,000 portfolio.

In Firecalc, I was trying to come up with the two scenarios.

1) Scenario 1: House paid off, yearly expenses of $50,000, Portfolio of $1,200,000

2) Scenario 2: $300,000 mortgage, interest 1st year of $10,500, tax savings of $1,000; therefore yearly expenses of $59,500 and Portfolio of $1,500,000

Scenario 1 Firecalc Results: 92.8% success rate for 30 years: Average Portfolio $1,954,019

Scenario 2: Firecalc Results:96.4% success rate for 30 years: Average Portfolio $2,688,299

Scenario 2: $10,500 of interest paid at 3.5% x $300,000, $1,000 tax benefit for interest so $9,500 greater yearly expense. Obviously interest will go down as well as the tax benefit at some point in time.

Variables that I was thinking about related to:

1) Part of mortgage payment is going to principal which is adding to your net worth

2) Tax benefits of the mortgage for the first x number of years. Used $1,000 tax benefit(($10,500 interest, $3,500 taxes, $1,500 charitable/state-$11,900 standard deduction married filing jointly)*.28 tax rate

3) The bigger the house loan the bigger the benefit for taxes, FI, etc. Not mustachian, but if you are going to live in a $700,000 house, better to have a large mortgage and large portfolio.

4) The mortgage is a great hedge against inflation as the interest and payment are locked in for 30 years.

5) The extra $300,000 of your portfolio would follow inflation as well, and would typically do better than inflation.

6) Interest rates are being subsided by the government, so might as well lock it in for 30 years. IE. With the SWR of somewhere between 3% and 4%, if inflation/market does not increase by that amount then Early FI would be in greater jeopardy than whether you have a mortgage or not. Therefore, interest is free or close to it under the current environment.

7) Did not take into account SS, Pensions, etc.

8) Tax benefit probably goes away once you retire as income drops.

9) How to create the model, with a person investing x number of dollars either in a portfolio or part portfolio and part mortgage on a monthly basis.

10) Cashflow issues, etc. if market is tanking and yet the mortgage payment is due. I think that is covered in Firecalc, except for the principal

With all the engineers and other math geniuses in MMM land, I figured someone has figured out how detrimental it is to pay off the mortgage vs. the psychology of being debt free. I think that would be a cool spreadsheet if someone could put that together or point me to where it is located. What else am I missing? I know there are a number of people with houses that are paid off, this would show them the math behind what it is costing them in years to FI, Firecalc confidence levels, ROI, etc. Time to get a mortgage? Maybe the psychology of having a paid off house outweighs the financial cost to FI, but at least it would be quantified.

Thanks for your help,

Tom