←back to thread

135 points holman | 8 comments | | HN request time: 0.018s | source | bottom
Show context
throw0101c ◴[] No.45764768[source]
I participate in a personal finance sub-reddit, and there is often a question of whether someone should pay off their mortgage (completely, or make some lump sum payments).

The mathematical answer is that if your interest rate is lower than the expected returns of some kind of portfolio you have, than you'll make more money investing.

But I like to bring up what Morgan Housel, author of the book The Psychology of Money, said on paying down his mortgage:

> It just increased our independence, even if it made no sense on paper. So that's another element of debt that I think goes misunderstood. And a lot of that for both of those points is this idea that people don't make financial decisions on a spreadsheet. They don't make them in Excel. They make financial decisions at the dinner table. That's where they're talking about their goals and their own different personalities and their own unique fears and their own unique skills and whatnot. So that's why I kind of push people to say like, it's okay to make financial decisions that don't make any sense on paper if they work for you, if they check the boxes of your psychology and your goals that makes sense for you. And for me, extreme aversion, what looks like an irrational aversion today, and I would say is an irrational aversion to debt, is what works for me and what makes me happy, so that's why I've done it.

* https://rationalreminder.ca/podcast/128

* https://www.youtube.com/watch?v=NSaRb-iFwPA&t=12m48s

replies(5): >>45765073 #>>45765117 #>>45765433 #>>45770597 #>>45787895 #
1. gbriel ◴[] No.45765073[source]
If you have a 2.6% mortgage which is less than inflation, then you are making money from the bank. Paying that off would be ridiculous.
replies(5): >>45765382 #>>45765429 #>>45765710 #>>45765747 #>>45771176 #
2. creakingstairs ◴[] No.45765382[source]
I mean there are other factors right? How long the rate is fixed for, penalty for paying off early, what you think the rate will be after term is over, you and your family's circumstances etc.
3. tonyedgecombe ◴[] No.45765429[source]
Paying your mortgage off comes with no risk, it’s not going to come back again. Meanwhile your investments could collapse tomorrow.
replies(1): >>45766861 #
4. abuani ◴[] No.45765710[source]
Just to reiterate the point the person above you made, but in far simpler terms: independence can be far greater return on your personal well-being then maximizing gains. I'm willing to "lose" out on $50-$100k over the lifetime of my mortgage in exchange for never needing to make a payment on the house again
replies(1): >>45768197 #
5. lostlogin ◴[] No.45765747[source]
The point being made is good though.

Owing no one anything is incredibly liberating. It changes how you behave and what you are risking.

Sure, I’d be richer on paper if I had kept the first house and rented it out, buying the second house with debt. But the worry and hassle and was my concern and I’m far happier. Perhaps 20 years from now my position would be different.

6. BobaFloutist ◴[] No.45766861[source]
If my federal money market account at one of the largest, most respected financial institutions in the world collapses, I don't know that the piece of paper saying this house belongs to me is going to be worth all that much anyway.
7. lotsoweiners ◴[] No.45768197[source]
The gov and insurance company will still want their taste. I think my escrow portion is probably at least 1/5 of my mortgage payment.
8. throw0101c ◴[] No.45771176[source]
> […] then you are making money from the bank.

Yes, that is the mathematically correct answer.