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I have found that being debt free provides me with a wonderful sense of well-being. I wouldn’t trade it for a larger portfolio.
Paying off a mortgage creates another floor under your personal net worth and creates cash flow that can then be invested in other areas that might add risk. The way I see it, buying stocks without paying off a mortgage is no different than investing on margin.
Another consideration is taxes. If you are not itemizing, then paying off a mortgage is like a tax free bond return, while other investments often add to taxable income. In other words, a 3% mortgage is closer to 4% after taxes. That’s a pretty good return in this environment.
Finally, it helps me sleep at night. That’s the best return on investment.
I’ve been thinking about that too, and agree that paying mortgage rates is like paying a bond. Then realized that if I take money out of my IRA I’d pay taxes on the distribution, and possibly push myself into a higher tax bracket. So the reasoning above works–but only if you have a taxable account without too much in capital gains.
Maybe. If you’re working, love where you live, saved at least six months of take-home pay for unexpected needs, and have retirement savings on track, then yes, pay down your mortgage faster. I’d do it again, even if bond yields were higher, for the greater happiness and better cash flow.
“Greater happiness” doesn’t strike me as a reason that can be generalized. Whether you want more or less leverage is a function of your tolerance for risk.
I paid off my first home’s 30-year mortgage in 13 years. Yes, I would have earned more by putting the money in stocks. But in my mind, that wasn’t the alternative. Instead, I viewed paying down my mortgage as a substitute for buying bonds—one that offered a higher return.
Yes, if you have bonds in your portfolio yielding less than the after-tax cost of your mortgage, it makes sense to pay off your mortgage first. But if you want leverage to increase your exposure to equities, a mortgage is the cheapest way to borrow for retail folks, i.e., those of us who aren’t corporations and able to issue bonds.
I agree. But how many people are 100% in stocks or close to it? In my experience, even the folks who say they’re fully invested in stocks (a boast you only hear after the market has had a good run) turn out to have at least some money in bonds, where it’s earning less than their mortgage rate.