This is just eerie. Didn't we, just a decade ago, see people pull out tons of equity from their homes, then lose jobs, then their retirement investments, then their homes? Have we forgotten just how bad leveraging can go?
I mean, if you have 6+ months' expenses in cash equivalents, go ahead and leverage away, but then you're "losing out" only getting savings account/money market rates on that money.
And don't think you could just "live on credit until another job comes along" - credit markets were tightened up significantly during the Great Recession, and safety nets like unused HELOCs were closed down.
I see nothing wrong with carrying a mortgage, and I know that cFIREsim says leveraging is, on average, better than not, but we just saw the perfect storm of people losing everything. It's not theoretical. And there's nothing to stop the banks from doing it again.
Which in my view is the strongest argument you can make for
not paying down the mortgage. Paying down the mortgage gives you security
only when the mortgage is finally paid off. If you become delinquent at any point the bank will repossess regardless of how many extra payments you made.
So to use your scenario, it is 2009 all over again only let's say you haven't quite paid off your house quite yet. You lose your job, then your retirement savings, and then house along with your down payment all the extra payments you made (minus any equity the bank decides to return to you, after they extract their enormous fees, and at a time of their chosing).
But if you had been investing instead, you have enough set aside plenty of money continue to make the payments, very likely for years if needs be.
The usual advice is to keep six months (or some other amount) in cash at all times in case the above disaster scenario happens. That's fine, but the need for substantial cash reserves before you even start is proof positive of how risky paying down down the mortgage really is. You need a safety net before even thinking about walking on that high wire. On the flip side, you don't need any special cash reserves to begin investing. You just being investing, and the green soldiers start working for you right way. If you need cash, it is the click of a mouse away. Try getting money out of your house that fast. And as you point, during difficult economic times, the bank may not let you borrow at all.
The reality is, over a say, 15-year period or however it long it takes you to pay off the mortgage, there is a decent chance that you or partner will lose their jobs, become sick, get divorced, or there will be some other reason why you need money. And if the money is in the house you either can't get it, or it will be expensive and difficult to access. I'm very risk averse, so I keep my money out of the house.