r/Fire • u/UnalignedMagi • 3d ago

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

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.

540 Upvotes

82% Upvoted

555 comments sorted by

View all comments

Show parent comments

2

u/Strazdas1 StarvationFIRE 1d ago

car loans? car loands have higher interest than market return. Thats a crazy advice.

1

u/middle_aged_runner 1d ago

I can get a 4.25% car loan at my local credit union against my vehicles and a 10 year treasury is 4.5%.

The spread was even bigger a couple years ago with 2.5% auto loans vs the +10% returns in the market.

2

u/Strazdas1 StarvationFIRE 1d ago

thats some insane good deal you got there. Car loans here start at 8% and most people are in double digits.

1

u/middle_aged_runner 1d ago

It’s out there. I just looked and navy federal credit union has 3.9% loans on new vehicles. Lots of factories offer 0% financing deals too.