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135 points holman | 1 comments | | HN request time: 0.001s | source
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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

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1. jakevoytko ◴[] No.45770597[source]
Cash flow is another facet of paying off your mortgage early, and I think it’s underrated. Eliminating thousands of dollars from your monthly expenses dramatically increases your flexibility. Since most people have “cash / reserve fund” and “retirement investments (do not touch)” as their major financial categories, it optimizes the one you interact with the most. You don’t need to always make the maximum possible to keep a comfortable amount of cash on hand, which gives you more flexibility to take time off between jobs, or tank a layoff, or take that startup job that pays less (but damn if it doesn’t look fun). Personally I recently bought a second apartment adjacent to my first in order to combine them into a 3br. Paying off the first mortgage years ago was the difference between being able to afford the monthly expenses and not.

Obviously you need to consider both net worth and cash flow when making a decision like that, but don’t underrate the difference that improved cash flow makes!