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Can you give the source for these numbers? I assume you're including inflation but still seems quite low.
If you adjust for inflation you have to adjust both the mortgage rate and the stock market return for inflation. Whichever one is higher before the adjustment is higher afterwards.
Put another way, if one comes out ahead in nominal dollars, it must do so in real dollars as well - because either your net worth is higher one way than the other - or it isn't.
I'd bet it would be a lot closer than youd think and this is very time frame specific. Over the last 20 years the total return for the s&p 500 is less than 5% annualized. The last 9 years it's 3.25% total return. The calculation is a bit more complicated that people simply guessing give credit for.
I don't know.... maybe..... all I know is over the last 20 years I've beat 4.17%, which is what my mortgage rate is. Obviously this varies.
If you have the funds and have other assets such as a decent amount of retirement savings and you are not wiping out your non retirement savings--I say pay it off. The peace of mind is worth it. If you lose a high paying job you can get a lower paying job and still meet your expenses without a mortgage hanging over your head. You don't have to worry about quickly finding a job if you lose it.
I paid mine off in 2014 and it was the best decision I made. I have no bills and tripled my savings rate in my 50s.
If you have the funds and have other assets such as a decent amount of retirement savings and you are not wiping out your non retirement savings--I say pay it off. The peace of mind is worth it. If you lose a high paying job you can get a lower paying job and still meet your expenses without a mortgage hanging over your head. You don't have to worry about quickly finding a job if you lose it.
I paid mine off in 2014 and it was the best decision I made. I have no bills and tripled my savings rate in my 50s.
I see it a different way. Our financial situation is secure: high income, high savings/investments and all types of insurance policies. It's precisely because of this financial security that we're in no rush to pay our mortgage.
Instead of putting six figures a year towards advance payments on a sub 4% mortgage, at this stage of our lives (late 30s), we're confident that we're better off putting it into our investments. And if something happens, we have the assets and insurance in place so that the mortgage wouldn't be an issue.
It's really pretty clear cut. The whole "peace of mind" thing is somewhat overblown here unless you can't handle stress at all. If you are diligent and dedicated enough to take the same amount of money that you would have used to pay off your mortgage early at roughly 4% interest, and invest it somewhere that makes more than 4% interest........ you win.
If you aren't dedicated enough, then by all means, put the money on your mortgage. If everything is done automatically though then it doesn't take much diligence or planning. If my neighbor took $400 a month and put it on his mortgage the last twenty years, and I take $400 and put it in the stock market the last 20 years....... I'm way ahead and its probably not even close.
Absolutely, over a period of 5, 10, or 20 years it is all but certain that you would be better investing the money as opposed to paying down the mortgage. In fact it is astounding how much better you can do over the long haul. There is another issue: income tax deductions. In my case, the mortgage interest deduction has a huge impact. That would not necessarily be the case for everyone.
So if it makes sense to invest rather than pay down a low interest mortgage, why do so many people think this is a bad idea? The argument to pay down the mortgage seems to be based entirely on "feelings." Unfortunately, to their detriment, many people seem to lead their financial and personal lives based on feelings. I suppose these are the same people who watch a stock market correction, panic and sell stocks when the market is down. So it seems there is indeed some sense to the argument to pay down a mortgage. People who do not use rational decision making are likely to lose even more if they try to invest.
the reason trying to invest instead turns out not the best choice is human nature . most folks suck at having the discipline to save and invest elsewhere as well as the track record for the small investor as a group sucks .
mostly because of pucker factor and the inability to stay put when there is a fire and others are running for the exits .
hey , if someone can do it successfully great , but not enough can do it and the morningstar small investor returns reflect that fact in almost every fund by tracking the money in and out . every fund did better then collectively those in the fund did because of overwhelmingly bad investor behavior .
I'm 29, just paid off my house. It is a great feeling. My interest rate was 4.0, so it's better to put money into the house then any type of savings, CD, money market, etc. I'm self employed and not eligible for a 401K, sure I could have put that money in a mutual fund or stocks and possibly gotten better returns, but I see little to no risk in getting my home paid off early. I'm happy with what I have done. I didn't put myself into a difficult position by paying it off and now have extra money each month to invest in something else. I knew little about investing and have been researching the last year or so what to do once my home is paid off.
the reason trying to invest instead turns out not the best choice is human nature . most folks suck at having the discipline to save and invest elsewhere as well as the track record for the small investor as a group sucks .
mostly because of pucker factor and the inability to stay put when there is a fire and others are running for the exits .
hey , if someone can do it successfully great , but not enough can do it and the morningstar small investor returns reflect that fact in almost every fund by tracking the money in and out . every fund did better then collectively those in the fund did because of overwhelmingly bad investor behavior .
Yes, but even with poor investment decisions, most investors will do quite well over periods of years. Certainly better than the 3.5% mortgage costs.
I see it a different way. Our financial situation is secure: high income, high savings/investments and all types of insurance policies. It's precisely because of this financial security that we're in no rush to pay our mortgage.
Instead of putting six figures a year towards advance payments on a sub 4% mortgage, at this stage of our lives (late 30s), we're confident that we're better off putting it into our investments. And if something happens, we have the assets and insurance in place so that the mortgage wouldn't be an issue.
Lol, we are the exact opposite.
We would rather completely eliminate the mortgage then invest more. Helps to have quite a bit of exposure in the markets already (including retirement, pushing 500K).
Also, allows us to maintain our lifestyle if one of us (ie the wife) quits their job.
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