Mitigating Mortgage Risk

[Ottawa]

As we head closer to our FIRE date I'm trying to decide how to deal with our outstanding mortgage. 

Our target FIRE stash is comprised of two components:  The portion that we will use to sustain our FIRE plans and the portion that can be used to crush the mortgage.  While we are still working, we're paying the mortgage down using salary dollars.  So far this strategy has worked, as we've netted around 40K over the last year by investing this mortgage payoff sum.

My initial plan was to squash the mortgage before we retired (in ~1 year) in a lump sum payment.  However, the capital gains hit would be fairly hefty in unwinding the ~225K that would be required next year in order to execute this plan. 

I'm now considering a different strategy, in order to mitigate against the (inherent) risk of the invested house stash.  Namely, selling off around 75K of asset which would leave the balance under 150K on retirement.  The plan would be to then continue paying off mortgage at a minimum rate as long as mortgage interest rates in Canada stay reasonably low.  We are currently on a variable rate (2.15%).   

Can anyone share their thoughts and/or strategies on this one?  Are any of the FIRE'd crew here still managing a mortgage under circumstances like this? 
Thanks for you input!!

[Freedom17]

Can you characterize what risk you are referring to? Other than interest rate risk I don't see what the problem is here. Do you have fixed rate mortgages in Canada? That would remove your risk completely.

Also it's not clear to me why you'd pay off a mortgage which is the cheapest finance around. Why not invest the money instead?

[BFGirl]

There are lots of threads about invest vs. pay off mortgage.

Here is one:
https://forum.mrmoneymustache.com/welcome-to-the-forum/mr-math-and-paying-off-your-mortgage/

[BFGirl]

Can you characterize what risk you are referring to? Other than interest rate risk I don't see what the problem is here. Do you have fixed rate mortgages in Canada? That would remove your risk completely.

Also it's not clear to me why you'd pay off a mortgage which is the cheapest finance around. Why not invest the money instead?

I don't agree with a blanket statement that a fixed rate mortgage would remove the risk completely.  I think it depends on why the investment needs to be made.  If it is to maintain a planned withdrawal rate then the advice might be sound.  If the OP has sufficient other assets to maintain the withdrawal rate, then the potential risk of having to sell depressed assets to make a house payment in a downturn may be more than the OP wants to deal with.

[Ottawa]

Can you characterize what risk you are referring to? Other than interest rate risk I don't see what the problem is here. Do you have fixed rate mortgages in Canada? That would remove your risk completely.

I suppose there are a couple of things that I lump into the 'risk' category. 
1) Interest rates
2) Capital preservation of the 'pay off mortgage in full sum'.  Logically, I know that over the ~7 years we would be paying off the mortgage in retirement, the odds are that the invested capital would gain at least 50% and would represent a win.  This is more a psychological risk - I don't want to have the potential risk of creating stress when there didn't need to be.  We don't really require additional money.  We have many safety nets in place.  I take your point about fixing the mortgage - this is something I will explore as an option. 

Also it's not clear to me why you'd pay off a mortgage which is the cheapest finance around. Why not invest the money instead?

This is what we are currently doing.  I'm just exploring some of the things I want to have a firm grasp of all the options on as we approach retirement. 

[Ottawa]

I don't agree with a blanket statement that a fixed rate mortgage would remove the risk completely.  I think it depends on why the investment needs to be made.  If it is to maintain a planned withdrawal rate then the advice might be sound. If the OP has sufficient other assets to maintain the withdrawal rate, then the potential risk of having to sell depressed assets to make a house payment in a downturn may be more than the OP wants to deal with.

This is the main concern.  But it conflicts with my logic side...which says invest and trust the long-term returns will more than cover the mortgage interest that is lost.

[Freedom17]

How does your mortgage payment compare with rent?

If its similar then in a downturn you'd have to sell depressed assets to pay rent, as opposed to selling depressed assets to pay your mortgage.

[Ottawa]

There are lots of threads about invest vs. pay off mortgage.

Here is one:
https://forum.mrmoneymustache.com/welcome-to-the-forum/mr-math-and-paying-off-your-mortgage/

Thanks for the link, I've read through some of that thread now.  I'm sure I'll change my perspective on what is best depending on the evolution of circumstances.  Most likely will probably keep money invested and adapt if necessary...

[msheldon]

I don't agree with a blanket statement that a fixed rate mortgage would remove the risk completely.  I think it depends on why the investment needs to be made.  If it is to maintain a planned withdrawal rate then the advice might be sound. If the OP has sufficient other assets to maintain the withdrawal rate, then the potential risk of having to sell depressed assets to make a house payment in a downturn may be more than the OP wants to deal with.

This is the main concern.  But it conflicts with my logic side...which says invest and trust the long-term returns will more than cover the mortgage interest that is lost.

It looks like the risk is due to mis-matched time horizons of the debt (7 years, so an intermediate term debt payback horizon) vs investment option (stock market which is long term, or >10 years). If you invested your lump sum in intermediate term bonds, your likely have about a wash: the expected gains would about equal your interest payments.

[Retire-Canada]

I'll be paying off my mortgage for at least ~15yrs after I FIRE potentially longer as we may renovate or move to a more $$ house. I am saving the amount required to pay my mortgage at 4% WR in my stash. Because of my timelines this happens to be an amount similar to the outstanding mortgage balance. I'd far rather have that money in my stash and pay a mortgage then give it to the bank and have a paid off house with a smaller stash.