I paid off my mortgage a couple of years ago using gains from the sale of the one bedroom condo I was renting out (I rented it out instead of selling when I moved into a townhouse in 1997, still can’t believe my luck). Sometimes I think I should’ve refinanced it at a lower rate and put the money in a bank, but the feeling of owning my property outright is just great. There is also feeling of security that even if I loose my job, I’ll still have my home. Currently my taxes and common charges add up to about $600 a month, and this is in the area where one bedrooms go for $1300-1600. Now we also have an assessment for re-siding, and because I don’t have the mortgage, I can easily afford it – it does reduces the amount I save every month, but it doesn’t make a dent in my budget.

By the way, if my rate had been lower than CD/treasuries rates without having to refinance, maybe I would’ve kept my mortgage. My friend is doing that even though she has the money to pay it off, but she bought her house where the rates were at the lowest point.

I would never again base the decision to pay off mortgage on market returns. I tried it once, and got burned. At the height of the internet boom, a friend suggested to me that I should sell my company’s stock and pay off my mortgage. I told him that I was earning more on the stock market. Then came the crash. My company stock lost over half of its value. Now it went up a bit but it still is worth about 2/3 of what it was at its height; my total portfolio value excepting my company’s stock is only now approaching where it was in early 2000. Had I listened to his advice, I would’ve kept the gains from my condo. Index might be better long-term, but if you loose your job while the market is down, you still need to come up with mortgage payments. It took several decades to recover completely from the crash of 29, and you may just happen to need the money during the downturn.

The question is: Honestly, how much are you going to come out ahead by investing in the market? I haven’t seen anyone come up with a reasonable expectation of the *magnitude* of the difference in returns, given interest rate changes, inflation, etc. If we’re talking about a mild out-performance in the market vs. paying off the mortgage, is it really worth the risk? That’s the question.

Also, realize that timeframe is everything. The question is: what kind of returns will someone realize in the market in these *NEXT* 10-30 years. ie. If I only have 10 years left to pay on my mortgage, and we have an oil crisis over the next 10 years, where inflation is 12%, don’t come talking to me about 8-10% market returns.

So, again, I ask: is a mild out-performance worth the risk?

Once the numbers have been crunched, both for and against paying it off early, it comes down to: which option would make you happier?

One can not always assume that pinching pennies, or benjamins, will necessarily be a good emotional investment.

I’m in the keep the mortgage, maximize investment camp, because my experience with investing has largely been positive. Actually not just positive, but fantastically positive. And by investing, I don’t just mean mutual funds in 401K’s, I also mean real estate and business ventures – which require significant capital on tap in order to participate. I am fond of saying that like Lotto, “you have to play to win”. If you don’t have money to put to work, you can’t reap the rewards.

But, you do have to be prepared for the risks. And I have certainly lost money in the past as well. So, maybe it really does come down to a psychological tolerance for risk.

Good luck!

*I* think its a wise choice, and wisdom trumps logic. I wish you much success in paying off your mortgage early!

DB

Everyone: Thanks for the comments.

We *do* understand that it is an irrational choice and it will cost us some money in the long run… and yet, we find that we would rather pay the mortgage first. It is this illogical behavior that I was trying to find an explanation for. Like Dimes pointed out it is a psychological hurdle we need to get past. Hopefully some day (sooner rahter than later), we will.