My comments are related to your question, but not directly answering them. They relate more to the discussion about paying off vs. investing that money elsewhere. This dawned on my while watching a movie this weekend about book and bust cycles in our economy, and how we continually repeat our mistakes. A lot of our problems start when we speculate (railroads, tulip bulbs, housing, etc.) and sometimes where people borrow money so that they can invest it. Now wouldn't having a mortgage be that? I know you have a house to live in, but isn't that essentially going to the bank and asking for money (with terms) and then putting that into the stock market. So instead of paying off your house you are taking that money and investing it?
I dunno, it seems so much the same. I'm curious about others thoughts on this, and I hope this isn't a derail of the OP's thread.
Isn't the earlier you pay it off the more you save because you are paying so much to interest in the earlier parts of the loan? So if I wait 15 years to pay off my mortgage vs. waiting 5 years, I would think I am saving much more in the 5 year payoff. I know in your scenario you are investing at the same time, but you are not investing a large amount of $$, just payments (or smaller incremental amounts). I just feel like there is more to this than just saying that "my house loan is 4%, so I'll just invest that payoff amount (if you have that much) in the market, etc. and get better than 4% and come out ahead." It just doesn't seem like it is that easy or clear.
This has been covered in great detail in this thread and earlier threads, but there's a few things that also need to be considered.
One is inflation: When you take out a mortgage with a fixed term it doesn't increase with inflation. This means that your monthly payment goes down in real-adjusted terms over time. For example, a person might have a mortgage payment of $1k. During year 1, $1k/mo may be a substantial (~30%) of their budget, but by year 29 it may only 10-15% of their budget. Why? Because $1k today is worth a lot less than what it was worth 29 years ago (to use data: $1,000 in 1987 would be worth $2,121 today).
Second, there's the time period being considered. Certainly there are boom and bust cycles, but there has never been a 20 year period during which real-returns of the SP500 have been negative, and the average return has been about 7% per year. If you have a very short time period, say 1-3 years, then it can make a lot of sense to pay down the mortgage. But if we're looking at decade+ time lines then it tilts heavily towards investing it.
Third - tax advantaged accounts. There is a huge difference when we start considering tax-advantaged accounts. If you are not already maxing out all of your available tax-advantaged accounts it's very hard to come out ahead by paying down the mortgage.
Forth - risk. Paying off your mortgage instead of investing means your NW will be almost entirely tied to a single asset - your home. That's the exact opposite of diversification. Plus, during the time that you are paying down your home you put yourself at risk of all other economic emergencies (e.g. job loss, injury/sickness, natural disaster, falling home prices, etc). It doesn't matter if you've paid extra on your mortgage every month for 3+ years. If you suddenly are unable to pay for a few months in a row you risk loosing your house and most of your NW.
As
fishindude has argued, should you have the cash flow you can always take the middle road and both invest some and pay extra towards the mortgage. Based on 100+ years of history it's unlikely this will result in the optimal outcome, but it's not a bad strategy to take if you are debt adverse. By paying off your mortgage (a fixed debt) you loose one source of protection from inflation, which is arguably a much bigger threat to retirement than sub-average returns - there have been periods in the US when inflation has averaged >5% for a decade or more, and years when it has gone above 10%. Other nations have experienced much worse. If you want to protect against inflation there are two common strategies; 1) have even more money invested and/or 2) carry some fixed debt at a low interest rate.
There's also the matter that a mortgage is "forced savings", and the idea that people are often very bad at saving and will instead spend extra money they don't have. If this describes you paying extra towards your mortgage is not a bad idea. But if this is a concern a much more valid goal is to max out all tax advantaged accounts each year and to increase automatic contributions to taxable account. If you decide that contributing to your 401(k)/IRA is not "optional", these become 'forced savigns" accounts too.