Qval, there is no arguing risk adjusted returns with these guys. Their arguement is that a strategy with the higher expected return is the best strategy. They seem to think that market returns are guaranteed to be higher in the long run. While higher returns are the likely scenario, they are by no means the guaranteed result. If one uses leverage and is wrong, then the losses are multiplied. Again, i am not saying dont do it, but to say one should always leverage is not a fit for all risk profiles.
The flipside of the coin, when you speak of risk, is who is holding the risk when your house is financed?
The bank is more at risk than you. So if you have a low interest mortgage, you're not the one at risk should the asset be devalued... ie the housing market crashes and you need to move or relocated. You simply short sales the house, or let it foreclose, and walk away with some credit marks on your credit profile.
And during a housing crash, if you should have emergency bills you need to pay, you can't liquidate the money you put into the house to pay for those expenses. Say a loved one gets cancer and needs money for quality treatment, you are SOL if you need money fast.
So I take the money that can be used to pay off the mortgage, place a portion of it into shorter term investments, so it can be pulled in an emergency (small likelihood, but still a chance). The rest I put into longer term investments that will yield greater returns over time.
People only think of risk on one side of the coin, not the other. When you consider the entire picture, keeping a super low rate mortgage is a no brainer.
I struggle with this emotionally, but we've decided to let our 4% mortgage ride. We have about 20 years to go on the loan, but one of us will retire at 66 in 8 years. The other will still have 14 more years to go before SS kicks in, so having income-generating investments that compound is more important than feelings.
We lost money on our first house due to a fast neighborhood decline in the last year we owned it. I have no "feeling" of security that we'd make more on our present house than we paid for it, since it's market value is still below what we paid for it in 2007. While I would like it if I didn't have to plan for that house payment until I'm in my seventies, I just remind myself that you can't eat a house, and the house doesn't produce income unless I want to deal with a roommate.
And although you can't live in a mutual fund, you can sell part of a mutual fund to pay for a place to live. You can't really sell part of your house to buy groceries next month.
Exactly. Even if you own your house free and clear, you do not truly own it. Try not paying property taxes for a few years and see what happens to the house. People are fooled into thinking once they pay off the mortgage the house is their's. Nope...property taxes can be a bear. And if you do standard itemization (because you no longer have a mortgage interest deduction), you also lose out on the benefit of deducting property taxes.
I say again, aside from some false mental assumptions of safety, paying off a low rate mortgage on a principal residence is foolish panacea. It's not the worst thing one can do, but if you are a smart mustachian, you will keep that mortgage and use the money to invest properly.