Yes, the math is there — but with a lot of assumptions. For example, that the markets will return what is the longterm average over what can be a short-term time frame in the overall picture — there have been times where the market has underperformed for a long period. Imagine if we really do go into a recession or a bear market for a few years.
Another assumption is that the person will be disciplined enough to stick with the ‘investment’ plan and do what they should with the extra money. Some people will ‘waste’ the extra money and not totally invest it or pay down the mortgage.
Another assumption is that a person keeps that job or a very similar paying job, or better — and that they are happy at that job. This is not always the case.
What is generally accepted is a difference of 1.4% between your interest rate and your lowest expected return percentage. I usually tell most folks just to round up to 1.5%.
But this, to me, assumes a 15-year loan at a low rate.
Paying it off early versus the extra you should earn by investing the extra does not take into account some of the things that affect most people. This amount will almost always be too low to matter as much to a person’s ease of mind.
The psychological reasons for paying your mortgage off early are numerous to me: less stress, less risk, more flexibility, more confidence in your financial future, more self-esteem in knowing you can handle a goal.
Yes, I always tell folks to make sure to get the company match in their 401K. I always recommend that they are investing in aggressive-growth type funds with at least 15% of their salary.
If a person drags out paying their house off until just before they retire, they will not have the advantages of someone that has paid their house off 15-20 years before retirement.
This person does not have the worry of what the markets will do now. They will not have to worry about job security. They will not have to worry about saving for their retirement. They will have more flexibility to do other things in life at an earlier age — when they are more likely to be healthier — such as travel. They can take a job with a lesser salary but more happiness — if they like. If they are married, one spouse can now stay home or start a business and/or spend more time with their kids. They can now start other investments, like rental houses or flipping houses — again, at a younger age where they are healthier and more willing and able to do this sort of thing.
The only true advantages to keeping a low-rate mortgage is that you will have a little more money in retirement when you are finally able to retire.
Money is not everything to everyone in life. There is a lot to be said with an easier or less stressful life.
The best choice is to have a mix. You need to live life and enjoy it as you go.
Certainly, it is a case-by-case individual basis.
But overall the person that saves as they go and aggressively pays off their mortgage early will be happier longterm than the person that will just barely get it paid off at 65 before retirement but has some extra money.
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