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Should you prepay a mortgage?

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Richard Gore
Richard Gore
1 month ago

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.

Gene Simmons
Gene Simmons
2 months ago

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.

nick ronalds
nick ronalds
1 month ago
Reply to  Gene Simmons

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.

David Powell
David Powell
2 months ago

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.

nick ronalds
nick ronalds
1 month ago
Reply to  David Powell

“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.

nick ronalds
nick ronalds
1 month ago

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.

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