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Pay Off Your Mortgage?

The answer is a resounding 'maybe!'

I stumbled across this post about adviser Allan Roth who urges clients who can, to pay off their mortgage as opposed to otherwise investing the money instead. He lays out an example that supports his belief. When I have seen this discussion before the context has always been investing into a stock and bond portfolio, but Roth only compares to a taxable bond fund.

This is arguably more of an emotional debate than a dollars and cents one. A couple of years ago a friend me asked whether she and her husband should payoff their $500,000 mortgage or hold onto the money instead, presumably to invest it.

When I graduated college I had a few thousand dollars or so in credit card debt. That inflated to about $5000 about a year after graduation (talking 1990). Shortly thereafter I earned by first “big” paycheck and paid off all the debt. While I was glad to be rid of the debt (haven’t had a balance since) I had a little bit of remorse about having a lot less cash than before I paid off the debt.

That was the story I relayed to my friend asking about her mortgage. If you’re going to only have a little bit left over then you may not want to pay it off, if you have a couple of million then it might be a whole lot less emotional.

I am more one to have a 15 year mortgage and pay extra each month. We paid off our first house here in Walker after about eight years (this was 2005) and were mortgage free until we moved into our current house in 2012. We have a 15 year mortgage on the new place and I think it will be paid off in about three more years. This path is more about being under-mortgaged than opportunity cost with a large lump sum although there would be some opportunity if the extra payment instead went into the market every month.

The most important thing is having your mortgage paid off when you retire. More and more, a successful retirement is just as much if not more so about outgo than income. If you have a mortgage you know what percentage it is of your total monthly expenses and being able to eliminate that would be a huge difference maker.

I’ve recently learned what stoicism is and that I am a stoic, meaning focusing on things that are in your control not beyond your control and managing a mortgage in this manner is likely to be in your control.

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