Deconstructing the pro-investing argument against paying off your mortgage:
In next month’s newsletter we’ll deconstruct several of the pro-mortgage viewpoints. We’ll stress test various rates of return assumptions in an attempt to determine where mortgage intertest rates and portfolio returns cross over from advantageous to disadvantageous. In doing so I hope to identify the level of risk necessary to make the pro-investing argument stick with a hypothesis that a risk adverse investor would be uncomfortable with the . We’ll explore the impact of paying off your mortgage and freeing up cashflows to be reallocated elsewhere.
That really led me to do some more digging. I want to get to the bottom of some of these arguments and test the threies. I want to determine which ones are conflicted, and how do they hold up under varying circumstances. Is there really a right brain guideline that would suggest holding your mortgage is better than it paying it off. Are you really better off putting that extra payment eacc month into an investment account, or are you better off being debt-free earlier in life rather than later, Or never.
And if it really is better to invest your money as opposed to paying off your mortgage early then why doesn’t everybody just rent? Wouldn’t it make more sense to not own a home at all. But then I hear the financial services industry make an argument for building a home equity, and the pride of home ownership. These are statements often paraded by the mortgage industry and the real estate industry. But you don’t get to have it both ways, do you you can’t say on one hand that you should build a home equity, but on the other hand say but too much. Where do you draw the line?
Its taboo to withdrawal equity from your home to investment. Financial institutions selling financial products through commissioned brokers ask specific questions to ensure that payments for their products did not originate from home equity.
Argument for investing vs paying off debt is reliant on a ROI and ignoring the would be mortgage payments of the paid off mortgage. Articles demonstrating 10% on the sp500 as an example over history. However, it is unlikely someone in their later stages of life are going to invest all of the would be prepayments in an index mirroring the SP500. It is more likely to be in a balanced allocation with a much lower historical rate of return. On top of that many economists are pointing to much slower market growth in light of meteoric growth through the current bull market.
If my mortgage is paid off 10 years earlier, I would have 10 years of orntagge payments that could now be invested. Pre-payments + the months of mortgage payments avoided needs to be considered as well.
At what rate of return is it no longer beneficial for the investing argument?
Mortgage note Pay-off Party vs Celebrate My Effiicent portfolio party.