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Comment by joncrane | Hacker News Reader

It sounds like you are in a great situation, by why would you aggressively pay down a 0% interest loan?

Nobody likes to be in debt, the sooner you can get rid of it, the better.

Is it though? if you have a 0% loan wouldn't it make more sense to pay as little as possible to the loan, and the surplus you save invest in something that gives you a return on your money?

Depends if it's fixed-rate

Hmm. But if you were investing that money even in some sort of risk free investment like time deposit, you'd be earning free money.

There is no such thing as risk free investment.

Including cash.

There definitely are investments that have a better risk/reward ratio than carrying a 0% interest debt on a mortgage.

e.g. savings accounts with 1% interest in the EU which are government insured up to 100k. Plus mortgage debt tends to have fiscal benefits in most countries, too. That's a better idea than paying off a 0% mortgage. Especially past a certain point where there's plenty of equity in the home.

There's generally virtually no financial reason to pay off a 0% debt apart from some edge cases here and there. People do it for peace of mind, which is of course fine, but it only works because of financial illiteracy as it's not the most financially optimal decision to make. (even not the least risky).

The problem with "financially optimal" strategies is that tend to ignore the fact that income can be lumpy. If everything is steady-state then it's "optimal" (as in better returns) to run highly leveraged. The problem is that life for individuals is not steady-state: you might lose your job, the economy might crater, the currency might get devalued, the property/stock market crash, etc. A 0% loan on a residence can be quite a problem if your income is 0 for some reason. Unlike a CEO who still gets his golden parachute if his highly leveraged, "financially optimal" company encounters "unforseeable" "turbulence" and ends up bankrupt, a bankruptcy in Me Myself and I, Inc. could be disastrous. Like, family on the streets disastrous. Individuals opting for peace of mind are minimizing downside risk, not maximizing "upside potential". Financiers can afford to take risks that end up with them blowing up, but when it's your life that blows up if some problem comes, minimizing the downside is a pretty maximizing strategy. The fact is, we know there we be periods of difficulty, we just don't know what the specific difficulty will be in advance.

I've got no clue how that's really meaningful in this case. I just mentioned there's a 1% interest government-insured savings account available, i.e. if the bank goes bankrupt, you still get your money. The only instance where you don't get your money is when the government goes bankrupt and doesn't honour its obligations. In that scenario, your mortgage debt would be even more screwed.

Meanwhile, getting 1% return on a 30 year mortgage puts you in a much safer, financially cushier position, than having had 0% returns for that period in time. Would you rather have 40k saved + 10k interest saved up in savings saved up in a government-insured savings account when you lose your job, or would you rather have a 40k lower mortgage debt and slightly lower payments or a lower time-to-payoff? Particularly given that mortgage payments can be furloughed and negotiated in times of payment difficulty. The answer is very clear. Choosing 0% returns over 1% returns in this case is the riskier choice.

If T-bonds default we've got bigger problems to worry about.

There are investments where the only risk is that the issuing government collapse- in which case the title to your property would be at risk as well.

This is true logically, but it's important to understand that most people behave based more on emotion than logic. Being debt-free brings a peace of mind that you don't get with rational maximization of returns while maintaining debt unless you are particularly mathematically inclined.

It's a little bit more complicated than I let on.

Loan is structured in 2 parts: Bankloan and mortgage.

Mortgage is at roughly 0% and has a fixed payment for the duration - I cannot pay it differently than the initial agreement.

The bankloan is at (I believe) 3%. I've roughly doubled my contributions to this loan, making it roughly equal to the amount I'm investing each month. I'm missing ~$10.000 on it now, so I think i'll just pay it down and have that out of the way.

Being ahead also means that I'll have a way easier time if I ever need to buy something big one month - I can just choose not to pay that loan and not invest this month and I'll have plenty of money to spend. It's nice having some free cash flow :)

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