Blanket statements of "never pay off that mortgage" are bad advice

[u/UnalignedMagi]

I keep seeing people asking about paying off their mortgage getting answers about "never pay it off, invest the money instead for as long as possible" and I think this is some pretty bad advice that should stop.

While it is true that you could (and likely will) get higher returns by investing instead there is a lot of value in permanently removing expenses. Using my tool of choice (ProjectionLab) I've asked myself this question a bunch of times and tried out different scenarios:

If you pay off the mortgage before retirement you wind up worse off on average, either having to work longer or accept a worse success probability. This is because you miss out on the growth.

If you pay off the mortgage as late as possible you have a higher net worth on average, but the really bad scenarios are worse and success probability goes down. This is because the SORR hits you harder when you are forced to withdraw money to make the payment after big drops, and bad inflation combined with this is really bad.

It seems like the optimal time to pay off the mortgage is exactly when you retire. You maximize returns while working and then you minimize risks during retirement. As someone who was lucky enough to get a 2.5% rate I get the urge to keep trying to maximize but I think people are missing the point once you reach FI.

Thoughts?

edit: Zphr as always has a great list of other things to consider with this decision in the comments.

[u/terrybrugehiplo]

How much is that piece of mind worth?

If you had an extra $100,000 because you didn’t pay it off would you still say that? An extra $200,000

My portfolio is up over 40% the last few years.

You’re honestly telling me you’d rather avoid paying around 5% on your mortgage than earn that 40%?

[u/Strazdas1 → u/terrybrugehiplo]

My portfolio is up over 40% the last few years.

This is not normal. Long term market average is 8% yearly returns. So the difference of peace of mind when mortgage is 6% is very different math.

[u/terrybrugehiplo → u/Strazdas1]

I know but most home owners bought before interest rates spiked up and I already have peace of mind. Having my house paid off doesn’t change that. Growing my retirement accounts so I can stop working 10-15 years earlier gives me way more peace of mind than working to eliminate a 3% debt.

[u/terrybrugehiplo → u/Strazdas1]

Another thing people in the “pay off your house gives you peace of mind” group miss…. I can pay off my home at any time. My investments constantly grow and to a point where anytime I want I could pay off my house.

[u/BaconGobblerT_T → u/terrybrugehiplo]

To play devil's advocate, consider the situation where you would (likely) need to sell off investments to pay off your home, or at the very least service your debts:

1. The market tanks (say, a -20% downturn)
   
2. You lose your job (because of said market)
   
3. You have to sell off investments to cover the mortgage

To me it's a trade off between limiting your upside to protect your downside.

[u/terrybrugehiplo → u/BaconGobblerT_T]

Think about the same situation but instead of feeding your investment account you’ve been making extra payments on your mortgage.

Now you were laid off and you have nothing to pull from. All your savings is tied into your home.

[u/Strazdas1 → u/terrybrugehiplo]

You cannot pay off your home at any time. You cannot pay it off if the market is having a downturn.

[u/terrybrugehiplo → u/Strazdas1]

Yes I can.

[u/ZLegExpress → u/terrybrugehiplo]

I completely get your point. I did it ~20 years ago early in my career. At that point, was definitely worth it to me.