What is the lowest rate you would aggressively pay down your mortgage? (US)

[Joel]

As someone who had a 2.5% mortgage rate (US) locked in, we were not paying anything extra on our mortgage. We recently bought a new house that had a 7% mortgage rate, that was high enough that we felt it made sense to aggressively pay down our mortgage. Now, we refinanced to 5.875% and I’m starting to wonder if it’s worth aggressively paying down our mortgage at this rate? If so, at what point is that no longer true?

[Joel]

My initial vote is 6%, but I’m wondering if 5% is the magic cutoff for me. Hopefully rates drop further in the next 12 months and I get to test that thesis.

[LD_TAndK]

6% is tempting for myself as well. It's tempting to think of it as risk free 6% return investment but it's not in reality the same as a perpetual 6% return investment if you factor in the possibility for future refinancing at lower rates.

Also just checked my vanguard personal performance says I've earned 11.3% annualized since I started index investing, my wife 13%. After 15% capital gains that's 9.5% to 11% annualized. Hindsight is 20/20 and past performance doesn't yada yada but sure glad I didn't pay off my mortgage.

[Joel]

I should also add that this is after having a sufficient emergency fund and maximizing our retirement account contributions.

[SilentC]

I can’t claim a mortgage tax deduction and after maxing 401(k) I would put 100% into the mortgage above 7%.  Above 6% 50:50.  Probably 15-20% to mortgage above 5.5% and nothing below 5.5%.

[neo von retorch]

My mortgage is 5.95% but... this poll is flawed.

Unless mortgage rates have no hope of coming down for quite some time, I have no plan to pay my mortgage down prematurely. I plan to wait a few years and refinance. Even a 1% drop would be a big help for the long-term plans.

I suppose if mortgage rates were 8% or higher (for my credit score / area / income) then the hope for a sub-6% rate any time soon might motivate me to pay it down for now, and carry a smaller balance with plans to refinance.

[SilentC]

My mortgage is 5.95% but... this poll is flawed.

Unless mortgage rates have no hope of coming down for quite some time, I have no plan to pay my mortgage down prematurely. I plan to wait a few years and refinance. Even a 1% drop would be a big help for the long-term plans.

I suppose if mortgage rates were 8% or higher (for my credit score / area / income) then the hope for a sub-6% rate any time soon might motivate me to pay it down for now, and carry a smaller balance with plans to refinance.

Forgot to mention in my answer, I think mortgages are at their long run equilibrium price now.  It doesn’t mean there is not going to be some volatility and you can sneak in a refi but I wouldn’t plan on 5% mortgages. 

[Joel]

I can’t claim a mortgage tax deduction and after maxing 401(k) I would put 100% into the mortgage above 7%.  Above 6% 50:50.  Probably 15-20% to mortgage above 5.5% and nothing below 5.5%.

I like your logic here that it doesn’t have to be all or nothing. I’m thinking about rounding up slightly on my monthly payments at a minimum, but maybe not going all in on paying down the mortgage, especially with the hope of further drops in the next 12 months.

[SilentC]

I can’t claim a mortgage tax deduction and after maxing 401(k) I would put 100% into the mortgage above 7%.  Above 6% 50:50.  Probably 15-20% to mortgage above 5.5% and nothing below 5.5%.

I like your logic here that it doesn’t have to be all or nothing. I’m thinking about rounding up slightly on my monthly payments at a minimum, but maybe not going all in on paying down the mortgage, especially with the hope of further drops in the next 12 months.

Thanks, the higher the rate the lower the probability that a diversified portfolio will outperform paying off the mortgage.  I also like your idea of waiting a year to see if we can get some significant slowdown or recession or government meddling that pushes mortgage to 4s or 5s. 

[Tyson]

I picked 10%.  But my real answer is 'never'.  I would never pay down the mortgage early.  Because I value having big giant balls liquid assets.  Gives me way more flexibility if SHTF. 

Paying extra payments to a mortgage has no value unless you can pay it off all at once. 

[Joel]

I picked 10%.  But my real answer is 'never'.  I would never pay down the mortgage early.  Because I value having big giant balls liquid assets.  Gives me way more flexibility if SHTF. 

Paying extra payments to a mortgage has no value unless you can pay it off all at once. 

That last statement is not entirely true. The 70k extra I paid while at 7% allowed for significantly lower monthly payments when I refinanced.

[nereo]

I picked 10%.  But my real answer is 'never'.  I would never pay down the mortgage early.  Because I value having big giant balls liquid assets.  Gives me way more flexibility if SHTF. 

Paying extra payments to a mortgage has no value unless you can pay it off all at once. 

That last statement is not entirely true. The 70k extra I paid while at 7% allowed for significantly lower monthly payments when I refinanced.

Only if you ignore the opportunity cost of that money. You could also have not paid $70k extra and instead put it towards other investments which you would expect to provide a better rate of return (and in retrospect this was true).

Then, during financing you could have chose to provide that same $70k towards principle pay down, thus lowering your monthly payment, and possibly your overall rate by buying points. Bonus - you would have the interest earned on that $70k.

[Villanelle]

At about 7.5%, I'd probably consider making some extra payments, though I don't know that I'd *aggressively* pay it down, and that would probably also be only in the case that I didn't feel like there was much chance rates would drop any time soon. 

[clarkfan1979]

Once I have "enough", I will pay off the mortgage. At some point, earning the additional spread between 9% on stocks and 2.875% on the mortgage won't have any value when you have everything you need. At that point, I would go ahead and pay off the mortgage.

I have 25 years and 209K left on my mortgage of my primary home with an interest rate of 2.875%. I'm currently 45 years old with a net worth of about 1.65 million. When I'm 60 years old and my net worth is around 5 million, I could see myself writing a check for 100K to get rid of the mortgage because I don't want to deal with it anymore.

[SilentC]

I picked 10%.  But my real answer is 'never'.  I would never pay down the mortgage early.  Because I value having big giant balls liquid assets.  Gives me way more flexibility if SHTF. 

Paying extra payments to a mortgage has no value unless you can pay it off all at once. 

That last statement is not entirely true. The 70k extra I paid while at 7% allowed for significantly lower monthly payments when I refinanced.

Only if you ignore the opportunity cost of that money. You could also have not paid $70k extra and instead put it towards other investments which you would expect to provide a better rate of return (and in retrospect this was true).

Then, during financing you could have chose to provide that same $70k towards principle pay down, thus lowering your monthly payment, and possibly your overall rate by buying points. Bonus - you would have the interest earned on that $70k.

Just to clarify … I assume most everyone here knows that if you prepay mortgage payments, you lower your balance due and each successive payment goes more to principal and less to interest.  So if you have a 7.5% mortgage and prepay $70k you are saving yourself $5,250 in interest per year that you pay with after tax dollars.  Your payment doesn’t change (unless you refi) but what you owe goes down $70k and each future payment has less interest attached/more goes to principal.  It can be a super attractive risk free return to pay down high cost debt.  Comments like there is “no value” to pay down a mortgage are not one size fits all. 

[Tyson]

I picked 10%.  But my real answer is 'never'.  I would never pay down the mortgage early.  Because I value having big giant balls liquid assets.  Gives me way more flexibility if SHTF. 

Paying extra payments to a mortgage has no value unless you can pay it off all at once. 

That last statement is not entirely true. The 70k extra I paid while at 7% allowed for significantly lower monthly payments when I refinanced.

Only if you ignore the opportunity cost of that money. You could also have not paid $70k extra and instead put it towards other investments which you would expect to provide a better rate of return (and in retrospect this was true).

Then, during financing you could have chose to provide that same $70k towards principle pay down, thus lowering your monthly payment, and possibly your overall rate by buying points. Bonus - you would have the interest earned on that $70k.

Just to clarify … I assume most everyone here knows that if you prepay mortgage payments, you lower your balance due and each successive payment goes more to principal and less to interest.  So if you have a 7.5% mortgage and prepay $70k you are saving yourself $5,250 in interest per year that you pay with after tax dollars.  Your payment doesn’t change (unless you refi) but what you owe goes down $70k and each future payment has less interest attached/more goes to principal.  It can be a super attractive risk free return to pay down high cost debt.  Comments like there is “no value” to pay down a mortgage are not one size fits all.

Yes, of course I understand that.  I know it because I did exactly that with a previous mortgage.  Then SHTF in the form of an extended layoff (9 months), and there was a real chance I would lose my house because I'd sent my extra $$ toward the mortgage instead of saving/investing it. 

That will NEVER happen to me again.  Having savings/investments is the only way to hedge against this kind of risk. 

Also, side benefit is you end up rich way faster.   Because math.

[SilentC]

I’m not saying you didn’t understand, and sorry to hear about SHTF Tyson.  Definitely it makes sense to have some reasonable liquidity cushion.  I disagree re “because math.”  A 7.5% mortgage I pay in after tax dollars is (edit >9%) pre-tax return.  That’s like S&P with no vol.  Also, buying a house with a 4%-5% cap rate with 7.5% after tax financing rate (especially if you can’t deduct the interest) is not a recipe to get rich on, unless your implied NOI is going to grow very rapidly driving appreciation. 

[GilesMM]

We have moved 10 times since 1996, an average of less than 3 years per location.  I think average Americans get around 5-7 years into a mortgage before moving for job, family, upgrade, downgrade, marriage, divorce, etc.  So, undue worrying about paying more or less for those few years seems like noise to me.  I like leverage and was always happy to have the bank own most of the house while I owned all the capital appreciation.

[Tyson]

I’m not saying you didn’t understand, and sorry to hear about SHTF Tyson.  Definitely it makes sense to have some reasonable liquidity cushion.  I disagree re “because math.”  A 7.5% mortgage I pay in after tax dollars is (edit >9%) pre-tax return.  That’s like S&P with no vol.  Also, buying a house with a 4%-5% cap rate with 7.5% after tax financing rate (especially if you can’t deduct the interest) is not a recipe to get rich on, unless your implied NOI is going to grow very rapidly driving appreciation.

S&P 500 returns with dividends reinvested averaged over the last 30 years has a 10.7% return, per year.  A mortgage would have to be really high to beat that. 

Part of this forum is to teach people to be resilient.  Paying extra towards a mortgage makes you more fragile, financially.  If you don't believe me, look at what happened to a lot of poor bastards during the 2007 housing crisis.  The ones that had paid extra toward their mortgages were still f'd.

The ones that shoved their extra cash towards savings/investments had a much, much bigger cushion to ride out the storm. 

[SilentC]

The S&P has also had very long (like a decade long) periods of near-zero returns.  It helps make you less fragile to have some balance, which could be more equity in your house.  Obviously if you have $50k in the bank you might not want to make prepayments but if you have $300k or $500k or $1mn why not?  Also there are a lot of options for getting equity out of a home like a HELOC, cash out refi, negotiating with your lender if you have a lot of equity or temporarily moving out and using it as a rental while you find a new gig. You can also just sell the house, in CO for example home prices were very stable during the GFC while stocks obviously fell a lot.  On a personal note, I had a $100k HELOC on my house and I drew it all week 1 of Covid, didn’t need it but figured it was really cheap liquidity.

[Telecaster]

Yes, of course I understand that.  I know it because I did exactly that with a previous mortgage.  Then SHTF in the form of an extended layoff (9 months), and there was a real chance I would lose my house because I'd sent my extra $$ toward the mortgage instead of saving/investing it. 

That will NEVER happen to me again.  Having savings/investments is the only way to hedge against this kind of risk. 

Also, side benefit is you end up rich way faster.   Because math.

Preach it.  This is a hugely important but not discussed enough reason to keep money out of your house.   I joined the DPOYM club in a very similar fashion.   Been shoveling extra cash towards the mortgage and then had an unexpected work stoppage, which ended but was followed by a period of work slowdown.   Having money in the house was Not Good.™   .

When I say this, the response is often along the lines of "well, of course you should have sufficient liquid assets before putting money in the house, such that you will never need or miss the money you pay extra."     Which is just acknowledging it is risky.   You want reward to match the risk you are taking, right?   If I'm taking a risk, I want stock market-like returns.   Not just barely beating inflation returns.   

The S&P has also had very long (like a decade long) periods of near-zero returns. 

A typical home mortgage lasts 30 years.  So that's the time frame for comparison.   There has been no 30 year period where the S&P with dividends reinvested returned less than current mortgage rates.   

But the other thing is that those flat periods is when you want to be pumping money into the market.  That's the best time to invest.   

[Tyson]

The S&P has also had very long (like a decade long) periods of near-zero returns.  It helps make you less fragile to have some balance, which could be more equity in your house.  Obviously if you have $50k in the bank you might not want to make prepayments but if you have $300k or $500k or $1mn why not?  Also there are a lot of options for getting equity out of a home like a HELOC, cash out refi, negotiating with your lender if you have a lot of equity or temporarily moving out and using it as a rental while you find a new gig. You can also just sell the house, in CO for example home prices were very stable during the GFC while stocks obviously fell a lot.  On a personal note, I had a $100k HELOC on my house and I drew it all week 1 of Covid, didn’t need it but figured it was really cheap liquidity.

Markets being down is actually a better time to invest because stocks are on sale.   

I picked 30 years as the timeframe because it's the same as how long a traditional mortgage.

Here's another way to think about it.  Lets say you bought a million dollar house, and you have a million dollars in the bank.  You could pay the mortgage entirely on day 1 or you could invest the million dollars in the market. 

If you pay off the mortgage, you'd save ALL the interest over the 30 year timeline.  I'm going to do a rough estimate of $700k savings.  Not bad, that's a pretty substantial amount of savings.

On the other hand, if you invest that $1M on day 1 and let it ride for 30 years in the market, you end up with $16M in your accounts.  This is the power of compounding.

[clarkfan1979]

The S&P has also had very long (like a decade long) periods of near-zero returns.  It helps make you less fragile to have some balance, which could be more equity in your house.  Obviously if you have $50k in the bank you might not want to make prepayments but if you have $300k or $500k or $1mn why not?  Also there are a lot of options for getting equity out of a home like a HELOC, cash out refi, negotiating with your lender if you have a lot of equity or temporarily moving out and using it as a rental while you find a new gig. You can also just sell the house, in CO for example home prices were very stable during the GFC while stocks obviously fell a lot.  On a personal note, I had a $100k HELOC on my house and I drew it all week 1 of Covid, didn’t need it but figured it was really cheap liquidity.

Markets being down is actually a better time to invest because stocks are on sale.   

I picked 30 years as the timeframe because it's the same as how long a traditional mortgage.

Here's another way to think about it.  Lets say you bought a million dollar house, and you have a million dollars in the bank.  You could pay the mortgage entirely on day 1 or you could invest the million dollars in the market. 

If you pay off the mortgage, you'd save ALL the interest over the 30 year timeline.  I'm going to do a rough estimate of $700k savings.  Not bad, that's a pretty substantial amount of savings.

On the other hand, if you invest that $1M on day 1 and let it ride for 30 years in the market, you end up with $16M in your accounts.  This is the power of compounding.

@Tyson When I do the compound calculator for 1 million for 30 years at 9.7%, I get 16,076,177. However, you are missing a piece of the puzzle to make a true apples to apples comparison based on your 1 million mortgage example. If you decide to take on a 1 million mortgage at 6.25%, your monthly PITI payment is $6157/month.

If you have a paid off mortgage, you do not have a debt obligation of $6157/month and you are free to put $6157/month into the stock market. If your money is earning 9.7% year in the stock market you will end up with 11,483,836.

Your gain is (16,076,177 minus 11,483,835), not (16,076,177 minus 700,000).

[Villanelle]

The S&P has also had very long (like a decade long) periods of near-zero returns.  It helps make you less fragile to have some balance, which could be more equity in your house.  Obviously if you have $50k in the bank you might not want to make prepayments but if you have $300k or $500k or $1mn why not?  Also there are a lot of options for getting equity out of a home like a HELOC, cash out refi, negotiating with your lender if you have a lot of equity or temporarily moving out and using it as a rental while you find a new gig. You can also just sell the house, in CO for example home prices were very stable during the GFC while stocks obviously fell a lot.  On a personal note, I had a $100k HELOC on my house and I drew it all week 1 of Covid, didn’t need it but figured it was really cheap liquidity.

Markets being down is actually a better time to invest because stocks are on sale.   

I picked 30 years as the timeframe because it's the same as how long a traditional mortgage.

Here's another way to think about it.  Lets say you bought a million dollar house, and you have a million dollars in the bank.  You could pay the mortgage entirely on day 1 or you could invest the million dollars in the market. 

If you pay off the mortgage, you'd save ALL the interest over the 30 year timeline.  I'm going to do a rough estimate of $700k savings.  Not bad, that's a pretty substantial amount of savings.

On the other hand, if you invest that $1M on day 1 and let it ride for 30 years in the market, you end up with $16M in your accounts.  This is the power of compounding.

@Tyson When I do the compound calculator for 1 million for 30 years at 9.7%, I get 16,076,177. However, you are missing a piece of the puzzle to make a true apples to apples comparison based on your 1 million mortgage example. If you decide to take on a 1 million mortgage at 6.25%, your monthly PITI payment is $6157/month.

If you have a paid off mortgage, you do not have a debt obligation of $6157/month and you are free to put $6157/month into the stock market. If your money is earning 9.7% year in the stock market you will end up with 11,483,836.

Your gain is (16,076,177 minus 11,483,835), not (16,076,177 minus 700,000).

Except when you pay off the mortgage you still have the "TI".  So you aren't investing the entire monthly PITI.  So while the difference is still less than the full $16m, it's more than this, right? 

[SilentC]

The S&P has also had very long (like a decade long) periods of near-zero returns.  It helps make you less fragile to have some balance, which could be more equity in your house.  Obviously if you have $50k in the bank you might not want to make prepayments but if you have $300k or $500k or $1mn why not?  Also there are a lot of options for getting equity out of a home like a HELOC, cash out refi, negotiating with your lender if you have a lot of equity or temporarily moving out and using it as a rental while you find a new gig. You can also just sell the house, in CO for example home prices were very stable during the GFC while stocks obviously fell a lot.  On a personal note, I had a $100k HELOC on my house and I drew it all week 1 of Covid, didn’t need it but figured it was really cheap liquidity.

Markets being down is actually a better time to invest because stocks are on sale.   

I picked 30 years as the timeframe because it's the same as how long a traditional mortgage.

Here's another way to think about it.  Lets say you bought a million dollar house, and you have a million dollars in the bank.  You could pay the mortgage entirely on day 1 or you could invest the million dollars in the market. 

If you pay off the mortgage, you'd save ALL the interest over the 30 year timeline.  I'm going to do a rough estimate of $700k savings.  Not bad, that's a pretty substantial amount of savings.

On the other hand, if you invest that $1M on day 1 and let it ride for 30 years in the market, you end up with $16M in your accounts.  This is the power of compounding.

@Tyson When I do the compound calculator for 1 million for 30 years at 9.7%, I get 16,076,177. However, you are missing a piece of the puzzle to make a true apples to apples comparison based on your 1 million mortgage example. If you decide to take on a 1 million mortgage at 6.25%, your monthly PITI payment is $6157/month.

If you have a paid off mortgage, you do not have a debt obligation of $6157/month and you are free to put $6157/month into the stock market. If your money is earning 9.7% year in the stock market you will end up with 11,483,836.

Your gain is (16,076,177 minus 11,483,835), not (16,076,177 minus 700,000).

Except when you pay off the mortgage you still have the "TI".  So you aren't investing the entire monthly PITI.  So while the difference is still less than the full $16m, it's more than this, right?

Thanks for the math work Clarkfan, my numbers are pretty well aligned. 
To nerd out on the #s I ran the math assuming you couldn’t get a 0% down $1mn mortgage.  With 20% down and investing $800k in stocks at 10%, 7.5% mortgage rate (P&I only payment of $5,594/mo) and no tax considerations I get $14.0mn portfolio value in 30 years putting 20% down on the house and $11.5mn for paying cash for the house and investing $5,594/mo in the market.  Edit- if you have a 30 year timeline for retirement it may make sense to carry the mortgage, but most people here are shooting for much faster than that, which makes the narrower range of returns distribution of the no mortgage portfolio pretty attractive. 

[RWD]

I disagree re “because math.”  A 7.5% mortgage I pay in after tax dollars is (edit >9%) pre-tax return.  That’s like S&P with no vol.  Also, buying a house with a 4%-5% cap rate with 7.5% after tax financing rate (especially if you can’t deduct the interest) is not a recipe to get rich on, unless your implied NOI is going to grow very rapidly driving appreciation.

If you have a 7.5% mortgage and can't deduct the interest on your taxes then the balance must be low enough that just paying it off is trivial anyway.

[Tyson]

The S&P has also had very long (like a decade long) periods of near-zero returns.  It helps make you less fragile to have some balance, which could be more equity in your house.  Obviously if you have $50k in the bank you might not want to make prepayments but if you have $300k or $500k or $1mn why not?  Also there are a lot of options for getting equity out of a home like a HELOC, cash out refi, negotiating with your lender if you have a lot of equity or temporarily moving out and using it as a rental while you find a new gig. You can also just sell the house, in CO for example home prices were very stable during the GFC while stocks obviously fell a lot.  On a personal note, I had a $100k HELOC on my house and I drew it all week 1 of Covid, didn’t need it but figured it was really cheap liquidity.

Markets being down is actually a better time to invest because stocks are on sale.   

I picked 30 years as the timeframe because it's the same as how long a traditional mortgage.

Here's another way to think about it.  Lets say you bought a million dollar house, and you have a million dollars in the bank.  You could pay the mortgage entirely on day 1 or you could invest the million dollars in the market. 

If you pay off the mortgage, you'd save ALL the interest over the 30 year timeline.  I'm going to do a rough estimate of $700k savings.  Not bad, that's a pretty substantial amount of savings.

On the other hand, if you invest that $1M on day 1 and let it ride for 30 years in the market, you end up with $16M in your accounts.  This is the power of compounding.

@Tyson When I do the compound calculator for 1 million for 30 years at 9.7%, I get 16,076,177. However, you are missing a piece of the puzzle to make a true apples to apples comparison based on your 1 million mortgage example. If you decide to take on a 1 million mortgage at 6.25%, your monthly PITI payment is $6157/month.

If you have a paid off mortgage, you do not have a debt obligation of $6157/month and you are free to put $6157/month into the stock market. If your money is earning 9.7% year in the stock market you will end up with 11,483,836.

Your gain is (16,076,177 minus 11,483,835), not (16,076,177 minus 700,000).

Fair, I didn't assume future cashflow going to the market.  But even if you do, you're still richer, faster and way more liquid with investing in the market vs paying off the mortgage. 

Now, just to be clear, I have a 2.85% mortgage so my personal math is different than the examples here. 

If I were a fully rational creature, I would never, ever pay off my mortgage.  But I am not.  Once I have enough $$ to retire, I'll continue saving/investing until I have enough to pay off the mortgage in full. 

Not optimal, but I hate debt and will be glad once the mortgage is gone.

[Telecaster]

Thanks for the math work Clarkfan, my numbers are pretty well aligned. 
To nerd out on the #s I ran the math assuming you couldn’t get a 0% down $1mn mortgage.  With 20% down and investing $800k in stocks at 10%, 7.5% mortgage rate (P&I only payment of $5,594/mo) and no tax considerations I get $14.0mn portfolio value in 30 years putting 20% down on the house and $11.5mn for paying cash for the house and investing $5,594/mo in the market.  Edit- if you have a 30 year timeline for retirement it may make sense to carry the mortgage, but most people here are shooting for much faster than that, which makes the narrower range of returns distribution of the no mortgage portfolio pretty attractive.

In your example, there is a $2.5 million benefit to holding the mortgage.   $2.5 million is real money.   Why is it smart to walk away from that?  Especially since you have to take large uncompensated risk to do so?

And disagree with the part in bold.   You can carry a mortgage in retirement no problem.  I do, and so do lots of people here.   The key number is have liquid assets equal to 25 times expenses (or whatever number you decide).   While no mortgage lowers your expenses, it lowers your liquid assets too.   

 I've run the numbers a bunch of times for myself and won't do it again here, but I recommend modifying your calculations to match most people's choices (and the title of this thread):  Namely, once you have a mortgage, do you pay extra each month, or do you invest the surplus?

So, instead of the no mortgage option being investing $6,000/month for 30 years, a more realistic scenario for most people would be making the mortgage payment of $6K/month, plus putting say, an extra $2000/month towards the mortgage.   The option of holding a mortgage would be simply investing the extra $2000 month for 30 years.

What happens of course, is the person paying extra eventually retires the mortgage.   Let's say around year 15-ish.  At that point, they can invest the full $8000/month (the original $6K payment plus the $2K extra) and the mortgage holder continues to invest $2000/month.    But thanks to the power of compounding the mortgage holder is so far ahead at year 15 that by the end of the 30 year period, the mortgage holder will still has a substantially higher final portfolio value.   

By all means, run the numbers yourself and plug your own assumptions.   I did a deep dive into this years ago (when interest rates were lower it should be noted) and paying down the mortgage never penciled out in any scenario I looked at.   To be clear, there are specific situations where it is important to lower income.   Qualifying for ACA subsidies for example.   Those are special cases and not the general result.

One final thought.   One thing we didn't talk about but needs to be considered is the effect of inflation.   If we assume a modest 3.5% inflation rate, by the end of year 15 our $6000 payment will be the equivalent of $3500 today.   In other words, by paying extra we're using fully valued dollars today to save smaller valued dollars in the future.    The payment is becoming easier and easier to make over time, which means there is less and less practical benefit to paying it off early.   

[SilentC]

Thanks for the math work Clarkfan, my numbers are pretty well aligned. 
To nerd out on the #s I ran the math assuming you couldn’t get a 0% down $1mn mortgage.  With 20% down and investing $800k in stocks at 10%, 7.5% mortgage rate (P&I only payment of $5,594/mo) and no tax considerations I get $14.0mn portfolio value in 30 years putting 20% down on the house and $11.5mn for paying cash for the house and investing $5,594/mo in the market.  Edit- if you have a 30 year timeline for retirement it may make sense to carry the mortgage, but most people here are shooting for much faster than that, which makes the narrower range of returns distribution of the no mortgage portfolio pretty attractive.

In your example, there is a $2.5 million benefit to holding the mortgage.   $2.5 million is real money.   Why is it smart to walk away from that?  Especially since you have to take large uncompensated risk to do so?

And disagree with the part in bold.   You can carry a mortgage in retirement no problem.  I do, and so do lots of people here.   The key number is have liquid assets equal to 25 times expenses (or whatever number you decide).   While no mortgage lowers your expenses, it lowers your liquid assets too.   

 I've run the numbers a bunch of times for myself and won't do it again here, but I recommend modifying your calculations to match most people's choices (and the title of this thread):  Namely, once you have a mortgage, do you pay extra each month, or do you invest the surplus?

So, instead of the no mortgage option being investing $6,000/month for 30 years, a more realistic scenario for most people would be making the mortgage payment of $6K/month, plus putting say, an extra $2000/month towards the mortgage.   The option of holding a mortgage would be simply investing the extra $2000 month for 30 years.

What happens of course, is the person paying extra eventually retires the mortgage.   Let's say around year 15-ish.  At that point, they can invest the full $8000/month (the original $6K payment plus the $2K extra) and the mortgage holder continues to invest $2000/month.    But thanks to the power of compounding the mortgage holder is so far ahead at year 15 that by the end of the 30 year period, the mortgage holder will still has a substantially higher final portfolio value.   

By all means, run the numbers yourself and plug your own assumptions.   I did a deep dive into this years ago (when interest rates were lower it should be noted) and paying down the mortgage never penciled out in any scenario I looked at.   To be clear, there are specific situations where it is important to lower income.   Qualifying for ACA subsidies for example.   Those are special cases and not the general result.

One final thought.   One thing we didn't talk about but needs to be considered is the effect of inflation.   If we assume a modest 3.5% inflation rate, by the end of year 15 our $6000 payment will be the equivalent of $3500 today.   In other words, by paying extra we're using fully valued dollars today to save smaller valued dollars in the future.    The payment is becoming easier and easier to make over time, which means there is less and less practical benefit to paying it off early.

It’s smart to pay down mortgage at 7.5% because I’m making a guaranteed tax-adjusted return of roughly 9%.  If I was a hedge fund manager and could do that I would attract a trillion in assets.  If the SALT limit gets lifted that changes the math.  9% guaranteed return helps me ensure I get to FI on target and stay FI.  Over the next 10 years the S&P could be +2% per year or +20% or even down, there is so much variability in returns in equity markets.  If mortgage rates are 5% it’s completely different math.  Really the question becomes ‘do I want to borrow at a tax adjusted ~9% to own stocks that base case might return 9%-10% but might return 2%-20% per year over the next decade?  If you are happy with being levered at 9% to that potential range of outcomes by all means keep the mortgage.

One more thought, if what I’m saying doesn’t make sense, google sequence of returns risk.  A 7.5% after tax annuity is a great asset to reduce your sequence of returns risk.

[Tyson]

Below is the calculator that you can plug in the numbers to see if paying early on the mortgage is beneficial, or not.  I plugged in 500k mortgage with 7.5% interest and 15% capital gains taxes, and $2k per month for extra payments/investments.  It shows you coming out over $600k ahead by NOT paying off the mortgage early. 

Having extra cash locked up into a home is not safer.  It's way more risky.  Most people with expensive homes have their net worth usually way over-weighted in the towards their homes anyway.  Paying extra towards the mortgage just makes that worse. 

[SilentC]

Below is the calculator that you can plug in the numbers to see if paying early on the mortgage is beneficial, or not.  I plugged in 500k mortgage with 7.5% interest and 15% capital gains taxes, and $2k per month for extra payments/investments.  It shows you coming out over $600k ahead by NOT paying off the mortgage early. 

Having extra cash locked up into a home is not safer.  It's way more risky.  Most people with expensive homes have their net worth usually way over-weighted in the towards their homes anyway.  Paying extra towards the mortgage just makes that worse.

Thanks for sharing Tyson.  I have built my own calculators and simulations for stuff like this so I can be confident in the output.  Probably an agree to disagree thing at this point.  Edit - apologies for saying it this way, what I mean to say is I’m pretty confident in my math and I am not good enough at conveying my thoughts.  Hopefully I will figure out what you are saying or I will be able to explain this concept better.

[Telecaster]

I think you are making it too hard.  Let's go back to your example and make it apples-to-apples tax wise.      In your example, if you hold a mortgage in retirement you wind up with an additional $2.5 million over paying cash.   But a good portion of that $2.5 million is taxable.   Let's keep it real simple and assume it is all taxable at the 15% MFJ capital gains tax rate.  That translates to $2,125,000 free and clear of taxes.   

$2.1 million isn't a little better.  It is a lot better.   It is no brainer territory.   The higher portfolio balance is vastly more useful.   

One more thought, if what I’m saying doesn’t make sense, google sequence of returns risk.  A 7.5% after tax annuity is a great asset to reduce your sequence of returns risk.

It doesn't make sense, but not because of sequence of returns risk.   You're making a fairly common mistake, namely you are conflating returns with expenses.   

As a thought experiment, let's say I could guarantee you a 25% rate of return for as long as you want.  Great!  Backup the truck, right?  With those kind of numbers retirement is assured!   To get that amazing rate of return, all you have to do is pay off your credit cards every month.   Awesome, early retirement is guaranteed!   

Of course, it doesn't work like that.  Paying off your credit cards each month is good, but it isn't a return, it is avoiding an expense.  It isn't valid to call it a return because it is really a savings, and it falls on the balance sheet as a savings.   

Similarly if you look at SWR calculators, there is no input tab for the rate of return for paying down your mortgage, because there is no rate of return.   What you are really doing by paying down the mortgage is eliminating a future expense.   That's why SWR calculators have an input tab for eliminating future expenses such as paying off a mortgage and why they don't count it on the income side.  Because it isn't income. 

[SilentC]

I think you are making it too hard.  Let's go back to your example and make it apples-to-apples tax wise.      In your example, if you hold a mortgage in retirement you wind up with an additional $2.5 million over paying cash.   But a good portion of that $2.5 million is taxable.   Let's keep it real simple and assume it is all taxable at the 15% MFJ capital gains tax rate.  That translates to $2,125,000 free and clear of taxes.   

$2.1 million isn't a little better.  It is a lot better.   It is no brainer territory.   The higher portfolio balance is vastly more useful.   

One more thought, if what I’m saying doesn’t make sense, google sequence of returns risk.  A 7.5% after tax annuity is a great asset to reduce your sequence of returns risk.

It doesn't make sense, but not because of sequence of returns risk.   You're making a fairly common mistake, namely you are conflating returns with expenses.   

As a thought experiment, let's say I could guarantee you a 25% rate of return for as long as you want.  Great!  Backup the truck, right?  With those kind of numbers retirement is assured!   To get that amazing rate of return, all you have to do is pay off your credit cards every month.   Awesome, early retirement is guaranteed!   

Of course, it doesn't work like that.  Paying off your credit cards each month is good, but it isn't a return, it is avoiding an expense.  It isn't valid to call it a return because it is really a savings, and it falls on the balance sheet as a savings.   

Similarly if you look at SWR calculators, there is no input tab for the rate of return for paying down your mortgage, because there is no rate of return.   What you are really doing by paying down the mortgage is eliminating a future expense.   That's why SWR calculators have an input tab for eliminating future expenses such as paying off a mortgage and why they don't count it on the income side.  Because it isn't income.

Re part 1, agree to disagree.  Edit - again apologies for saying it this way, what I mean to say is I’m pretty confident in my math and I am not good enough at conveying my thoughts.  Hopefully I will figure out what you are saying or I will be able to explain this concept better.


Part 2, avoiding an expense has a rate of return.  Two ways to prove this. 1) in the mortgage example, if I have a cash flow of -$800k that lets me not make 360 monthly payments of $5,593.72/mo on a 7.5% mortgage (those payments go into my pocket instead) and I then use the Excel IRR function to see what the return is, it is equal to 7.5%.  I hope excel IRR function is considered a trusted source. 2), if I have a business and I figure out a way to spend $10k to avoid $2k/yr in operating expenses, that adds just as much value as a $10k investment that brings in an additional $2k of variable profit.  This IRR can be measured, it’s about 16% after corporate taxes in both cases.

[SilentC]

This is a big concept in finance and I think I have a better less math-y example.  I go to MMM Community Bank and get a mortgage for my primary residence.  The next day I win the lottery!  I take my winnings to my financial advisor who says not to pay off my mortgage and to invest it all into bitcoin and fixed income.  She takes my winnings and buys bitcoin and then goes to MMM bank and buys a portfolio of mortgages.  Bitcoin goes to the moooooon and my mortgages earn a return of 7.5%.  However, we discover that one of the loans in the portfolio is the one on my house! 

Do I punish my advisor for making an investment with no IRR?  Did my mortgage portfolio yield less because as it turns out one of them was the mortgage on my house?  Was the $5000/month payment received on my loan worth a different amount than the $5000 payment on another mortgage in the portfolio?  Partial or full repayment of your mortgage is the same as buying your mortgage (or a fractional amount) from the bank. 

[SilentC]

I can’t sleep and I think I know how to communicate with Tyler and Telecaster on paying vs not paying down the mortgage.  I think they are basically right on a 30 year horizon and I’m basically right in thinking about the sometimes crappy consequences of leverage on returns.  I have been explaining my view from the wrong angle, it’s less intuitive to think about gaining a risk free return than thinking about high cost leverage impact.

Forget about mortgage payments and SWR, at the end of the day a mortgage is just financial leverage.  Thinking about how leverage works is the key.  Let’s say you have a $1mn portfolio, and your FI target in 7 years is $1.7m.  Then let’s say you have the option to invest in something that has an expected 7 year return of 100% and standard deviation of 30%.  By investing in this you have more than 80% chance of reaching your goal by year 7! 

Then, let’s say you can borrow at zero.  If you lever the portfolio 2x (borrow $1mn to invest and keep the leverage constant) that will approximately lead to an expected 7 year return of 200% and a bit more than double the standard deviation of returns.  But it’s a home run because you dramatically improve the odds of being at $1.7mn and you double your expected return.  Awesome!

Alternatively, let’s say leverage costs 10% per year.  In this case your expected return is unchanged (~100%) but you dramatically increase the odds of not making $1.7mn because the standard deviation of returns a bit more than doubles.  Boooo!

The point here is leverage at high cost widens the range of outcomes, so if you have a fairly short time frame for retirement like most FI strivers have, high cost leverage should be approached with caution.  A mortgage is essentially leveraging your investment portfolio and while it is great to try to maximize total returns it’s also valuable to think through whether this leverage compromises your goals. 

[vand]

For me it'd probably more a function of personal circumstances and what proportion is taken by housing costs, and more specifically housing interest payments.

I woudn't rely on just using a a straightforward "overpay x% when rates are at y%" rule because context matters, and real stock market returns don't really have any correlation to rates anway - which makes sense, as stocks know what the risk free rates is and price themselves accordingly (most of the time).


That said, if I was holding a large morgage (which I am) then I would be less inclined to hold bonds in my investment portfolio, as the mortgage gives me plenty of interest rate risk as it is.

[Tyson]

I can’t sleep and I think I know how to communicate with Tyler and Telecaster on paying vs not paying down the mortgage.  I think they are basically right on a 30 year horizon and I’m basically right in thinking about the sometimes crappy consequences of leverage on returns.  I have been explaining my view from the wrong angle, it’s less intuitive to think about gaining a risk free return than thinking about high cost leverage impact.

Forget about mortgage payments and SWR, at the end of the day a mortgage is just financial leverage.  Thinking about how leverage works is the key.  Let’s say you have a $1mn portfolio, and your FI target in 7 years is $1.7m.  Then let’s say you have the option to invest in something that has an expected 7 year return of 100% and standard deviation of 30%.  By investing in this you have more than 80% chance of reaching your goal by year 7! 

Then, let’s say you can borrow at zero.  If you lever the portfolio 2x (borrow $1mn to invest and keep the leverage constant) that will approximately lead to an expected 7 year return of 200% and a bit more than double the standard deviation of returns.  But it’s a home run because you dramatically improve the odds of being at $1.7mn and you double your expected return.  Awesome!

Alternatively, let’s say leverage costs 10% per year.  In this case your expected return is unchanged (~100%) but you dramatically increase the odds of not making $1.7mn because the standard deviation of returns a bit more than doubles.  Boooo!

The point here is leverage at high cost widens the range of outcomes, so if you have a fairly short time frame for retirement like most FI strivers have, high cost leverage should be approached with caution.  A mortgage is essentially leveraging your investment portfolio and while it is great to try to maximize total returns it’s also valuable to think through whether this leverage compromises your goals.

Who's Tyler?  You mean me?  lol.  OK, to keep it to specific numbers, you are saying that if you want to RE, you might not be looking at a 30 year timeline.  OK, how about moving the timeline to 15 years?  That's pretty aggressive and in-line with a lot of people's plans here on MMM.

Luckily the spreadsheet I linked earlier lets you shorten the timeline for the inputs.  If I do that, while keeping everything else the same (ie, 7.5% mortgage, 15% Cap Gains taxes, 10.8% S&P500 returns), and you still miss out on $70k by paying off the mortgage early.  Here's both timelines losses:

15 Years - loss of $70k
30 Years - loss of $695k

Either way, paying early to the mortgage is sub-optimal. 

Unless you think my math is wrong?  If you feel like the spreadsheet can be improved, let me know and I'll consider making changes.

[SilentC]

I can’t sleep and I think I know how to communicate with Tyler and Telecaster on paying vs not paying down the mortgage.  I think they are basically right on a 30 year horizon and I’m basically right in thinking about the sometimes crappy consequences of leverage on returns.  I have been explaining my view from the wrong angle, it’s less intuitive to think about gaining a risk free return than thinking about high cost leverage impact.

Forget about mortgage payments and SWR, at the end of the day a mortgage is just financial leverage.  Thinking about how leverage works is the key.  Let’s say you have a $1mn portfolio, and your FI target in 7 years is $1.7m.  Then let’s say you have the option to invest in something that has an expected 7 year return of 100% and standard deviation of 30%.  By investing in this you have more than 80% chance of reaching your goal by year 7! 

Then, let’s say you can borrow at zero.  If you lever the portfolio 2x (borrow $1mn to invest and keep the leverage constant) that will approximately lead to an expected 7 year return of 200% and a bit more than double the standard deviation of returns.  But it’s a home run because you dramatically improve the odds of being at $1.7mn and you double your expected return.  Awesome!

Alternatively, let’s say leverage costs 10% per year.  In this case your expected return is unchanged (~100%) but you dramatically increase the odds of not making $1.7mn because the standard deviation of returns a bit more than doubles.  Boooo!

The point here is leverage at high cost widens the range of outcomes, so if you have a fairly short time frame for retirement like most FI strivers have, high cost leverage should be approached with caution.  A mortgage is essentially leveraging your investment portfolio and while it is great to try to maximize total returns it’s also valuable to think through whether this leverage compromises your goals.

Who's Tyler?  You mean me?  lol.  OK, to keep it to specific numbers, you are saying that if you want to RE, you might not be looking at a 30 year timeline.  OK, how about moving the timeline to 15 years?  That's pretty aggressive and in-line with a lot of people's plans here on MMM.

Luckily the spreadsheet I linked earlier lets you shorten the timeline for the inputs.  If I do that, while keeping everything else the same (ie, 7.5% mortgage, 15% Cap Gains taxes, 10.8% S&P500 returns), and you still miss out on $70k by paying off the mortgage early.  Here's both timelines losses:

15 Years - loss of $70k
30 Years - loss of $695k

Either way, paying early to the mortgage is sub-optimal. 

Unless you think my math is wrong?  If you feel like the spreadsheet can be improved, let me know and I'll consider making changes.

Tyson!  Yes, you may have noticed like 90% of my posts are edited for spelling and such.  Anyway, I don’t think the math is wrong in the sheet though I haven’t audited it or anything.  It really is a good sheet.  It does not capture the concept that the higher the cost of leverage, the more likely you are to screw yourself having that leverage, and over shorter time periods the dispersion of possible market returns is higher than over longer periods.  That would dramatically complicate the sheet, need to think about that, it’s something I think about intuitively but I’ve never tried to build an optimizer around.  Also the more leverage you have the more variance which is another factor, if I have a $300k mortgage and $2mn investments it’s a different story than if I have a $1mn mortgage and $300k of investments.  SeattleCPA discusses somewhat similar concepts in a separate thread that should basically be merged with this one arguing that the real rate of return on mortgages right now is probably higher than that of the stock market if you believe in the power of the Cape ratio. 

[Telecaster]

The comparison has a number of assumptions and variables, but it pretty straightforward.

Scenario A:  Pay down the mortgage
Scenario B:  Don't pay down the mortgage and invest the difference

There are a few things that don't fit easily fit in a spreadsheet like the uncompensated risk of paying down the mortgage, opportunity cost, inflation, etc.  On the flip side, many people say they like the feeling of a paid off mortgage, which is real but tough to put a price on.   

Setting those things aside, I've crunched the numbers backwards and forwards and in any kind of scenario that applies to me, not paying down the mortgage is more financially advantageous by far than paying it down. 

I periodically revisit this topic because, well, there is a lot of money involved and I want to be open to re-evaluating my thinking.  Thus far, I haven't seen any assumptions or new thinking that changes the above statement.   

[Tyson]

I can’t sleep and I think I know how to communicate with Tyler and Telecaster on paying vs not paying down the mortgage.  I think they are basically right on a 30 year horizon and I’m basically right in thinking about the sometimes crappy consequences of leverage on returns.  I have been explaining my view from the wrong angle, it’s less intuitive to think about gaining a risk free return than thinking about high cost leverage impact.

Forget about mortgage payments and SWR, at the end of the day a mortgage is just financial leverage.  Thinking about how leverage works is the key.  Let’s say you have a $1mn portfolio, and your FI target in 7 years is $1.7m.  Then let’s say you have the option to invest in something that has an expected 7 year return of 100% and standard deviation of 30%.  By investing in this you have more than 80% chance of reaching your goal by year 7! 

Then, let’s say you can borrow at zero.  If you lever the portfolio 2x (borrow $1mn to invest and keep the leverage constant) that will approximately lead to an expected 7 year return of 200% and a bit more than double the standard deviation of returns.  But it’s a home run because you dramatically improve the odds of being at $1.7mn and you double your expected return.  Awesome!

Alternatively, let’s say leverage costs 10% per year.  In this case your expected return is unchanged (~100%) but you dramatically increase the odds of not making $1.7mn because the standard deviation of returns a bit more than doubles.  Boooo!

The point here is leverage at high cost widens the range of outcomes, so if you have a fairly short time frame for retirement like most FI strivers have, high cost leverage should be approached with caution.  A mortgage is essentially leveraging your investment portfolio and while it is great to try to maximize total returns it’s also valuable to think through whether this leverage compromises your goals.

Who's Tyler?  You mean me?  lol.  OK, to keep it to specific numbers, you are saying that if you want to RE, you might not be looking at a 30 year timeline.  OK, how about moving the timeline to 15 years?  That's pretty aggressive and in-line with a lot of people's plans here on MMM.

Luckily the spreadsheet I linked earlier lets you shorten the timeline for the inputs.  If I do that, while keeping everything else the same (ie, 7.5% mortgage, 15% Cap Gains taxes, 10.8% S&P500 returns), and you still miss out on $70k by paying off the mortgage early.  Here's both timelines losses:

15 Years - loss of $70k
30 Years - loss of $695k

Either way, paying early to the mortgage is sub-optimal. 

Unless you think my math is wrong?  If you feel like the spreadsheet can be improved, let me know and I'll consider making changes.

Tyson!  Yes, you may have noticed like 90% of my posts are edited for spelling and such.  Anyway, I don’t think the math is wrong in the sheet though I haven’t audited it or anything.  It really is a good sheet.  It does not capture the concept that the higher the cost of leverage, the more likely you are to screw yourself having that leverage, and over shorter time periods the dispersion of possible market returns is higher than over longer periods.  That would dramatically complicate the sheet, need to think about that, it’s something I think about intuitively but I’ve never tried to build an optimizer around.  Also the more leverage you have the more variance which is another factor, if I have a $300k mortgage and $2mn investments it’s a different story than if I have a $1mn mortgage and $300k of investments.  SeattleCPA discusses somewhat similar concepts in a separate thread that should basically be merged with this one arguing that the real rate of return on mortgages right now is probably higher than that of the stock market if you believe in the power of the Cape ratio.

That's the thing, we're all friends here and all trying to learn.  These are things I didn't know about before I came to MMM.  Hell, I didn't know about it even after I was on MMM for a while. 

It was only after I'd made the mistake of sending my cash to the mortgage and then facing long term job loss that I realized what a mistake paying early to the mortgage was.  I just try to raise the flag with other now so they can make an informed decision.  I assume many people are like I was back then:  Paying extra to the mortgage felt 'right', because we're supposed to pay our debts, right? 

Then I found out that doing what felt right actually put me in a really precarious situation.  Because I'd assumed I'd always have a job, and any layoffs wouldn't last more than about 3 months. 

[Joel]

OP here.

In my situation, my employment includes a 6-month severance arrangement and I include a 24-month emergency fund. So this is truly a matter of paying down my mortgage at just under 6% now or making taxable investments.

At 7% guaranteed, the benefit of paying down the mortgage felt more beneficial to me than the additional variability / risk within the stock market. Besides those of you firmly in the two different camps, it seems like the poll indicates between 5-7% is where a majority folks start to considering paying down the mortgage.

[Duke03]

I paid off 2.65% rate 3 years ago and never once did I tell myself Gee, I really miss my house payment..  Earlier this year we also bought a piece of property and paid cash for it.  I guess I could have gotten a loan and paid 7-8% interest, but why.  We are millionaires and I prefer to actually own the things that I own. 

[neo von retorch]

I made 35% over the past 12 months on the $450K (invested in VTI) that I didn't use to pay off  my mortgage and never once did i think to myself, Gee, I really don't want an extra $150K. I guess I could've paid off my 6% mortgage and saved $27K but putting investments to work is kind of a nice way to let my money do my work for me.

[SilentC]

I made 35% over the past 12 months on the $450K (invested in VTI) that I didn't use to pay off  my mortgage and never once did i think to myself, Gee, I really don't want an extra $150K. I guess I could've paid off my 6% mortgage and saved $27K but putting investments to work is kind of a nice way to let my money do my work for me.

That analysis feels kind of irrelevant to future decision making - will you feel the same if VTI is down 35% in 12 months and you could have been +4% on a mortgage?  Can you predict market returns over the next 12 months?  Hindsight is always 20/20. 

Edit- I’m not saying it makes sense to prepay on a 4% mortgage, you are meant to hold onto that with both hands and never move.  But the higher the rate the more likely you are to hurt yourself by not prepaying.

[neo von retorch]

That analysis feels kind of irrelevant to future decision making - will you feel the same if VTI is down 35% in 12 months and you could have been +4% on a mortgage?  Can you predict market returns over the next 12 months?  Hindsight is always 20/20.

Definitely not :) Just couldn't resist a little snark at the comment before mine. Obviously the math for how a broad market index does over a longer time period is what you'd want to use. For example, S&P 500 Rolling 10-year annualized returns.

That comment also said "a few years ago." If we look VTI, it's only up 25.5% over the most recent 3 year period. So with my $450k example and their 2.65% APR, we're looking at about $115k of investment gains vs. $36k in mortgage interest saved.

[nereo]

I do find comments about how paying off a mortgage “feels” and having “never missed my mortgage payments” to be extremely one-sided. To be blunt, I find having $300k+ in my taxable brokerage far more comforting than not having a mortgage, and saying like “never missed having a mortgage payment” seem to deliberately ignore that’s the trade off for having more in investments. It’s the opportunity cost.

I do agree that once your investments are 5-10x your mortgage balance it matters relatively little which one you choose. I do worry about people who prioritize mortgage payoff when their liquid investments are a fraction of their mortgage total, and/or when they are leaving tax-advantaged space on the table to do so. I’ve witnessed a lot of horror stories on how this played out when the SHTF.

[SilentC]

That analysis feels kind of irrelevant to future decision making - will you feel the same if VTI is down 35% in 12 months and you could have been +4% on a mortgage?  Can you predict market returns over the next 12 months?  Hindsight is always 20/20.

Definitely not :) Just couldn't resist a little snark at the comment before mine. Obviously the math for how a broad market index does over a longer time period is what you'd want to use. For example, S&P 500 Rolling 10-year annualized returns.

That comment also said "a few years ago." If we look VTI, it's only up 25.5% over the most recent 3 year period. So with my $450k example and their 2.65% APR, we're looking at about $115k of investment gains vs. $36k in mortgage interest saved.

Yeah that is a pretty low rate to pay off.  Somewhat unrelated but what a jobs #, mortgage rates up 0.27% in a day per mortgagenewsdaily.  Not kind to a lot buyers and people waiting to refi.  What rate to pay off feels like it’s becoming less academic and more the base case that rates will hover in a range where you need to really think about how to allocate your income. 

[Tyson]

Well if we are talking market volatility, I can only say:

Fear is back, VIX above 15, XIV breaking down. SPY to follow, earnings will be a reality check.