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Comment by joshstrange | Hacker News Reader

I'm debt free except for my mortgage (and my CC but that's temporary and I never carry a balance) but I have a hard time seeing why I'd want to pay off my mortgage.

My mortgage is at 2.25% and my savings account gives me 5%. At this point (especially with the market not really doing awesome) why wouldn't I just dump any extra money I have into my savings? I mean that's not really a question and it's what I've been doing for a while now. Even before they raised interest rates I was getting 3% on my savings.

A part of me would love to throw money at my principal but oddly paying off that debt would be financially irresponsible in the long run.

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Risk. Where have you factored the risk?

Let's pretend you have your house paid off. Would you borrow against your fully paid-off house at 2.25% interest to put into a savings account at 5% return? The terms involve someone else owning part of your house, and could force you out if they don't get paid. Does that sound like a good plan to you? If you don't think it is, that's risk, but that's what you're effectively doing right now.

This argument doesn't make sense. The money isn't gone, it is accumulating in an account and can be applied to the mortgage at any time plus the interest rate arbitrage. Making extra mortgage payments does not remove any risk.

It makes no sense to pay off debt with a significantly lower interest rate than the sovereign interest rates for the currency it is denominated in. It is the closest thing to "free money" as exists. I know several people that could pay off their house any time they feel like it but don't because their interest rates are lower than US treasury rates. It is the financially prudent thing to do. If they wake up on day and decide they don't want a mortgage, they still have that option.

>Would you borrow against your fully paid-off house at 2.25% interest to put into a savings account at 5% return?

If that 5% is in treasuries and I can pay off my loan at any time without penalty? I'm not really seeing the downside. (Ignoring any tax effects, etc.) There's arguably some value to owning the house totally free and clear--though even that isn't ever really the case given property taxes, etc.

> 2.25% interest to put into a savings account at 5% return

Sure, that seems rather savy to me. The only problem is I can’t guarantee 5.5%

At the moment--though it likely won't last--you can get 5% on very low risk investments primarily in treasuries.

I'd be very comfortable putting that money into index funds as well. Even if the market crashes hard, you'll still have more than enough left to pay the mortgage for years during which the market can, and very likely will, recover

Would I borrow at 2.25% when I could get 5% on what I borrowed and immediately pay off the borrowed amount if the 5% slipped? Yes I would, why wouldn't I?

> My mortgage is at 2.25% and my savings account gives me 5%

This is a great situation to be in. You should not be making any extra mortgage payments that you don't have to.

There are three reasons I want to pay of my mortgage, even though my interest rate is 2.99%:

1. Minimize financial risk. There are no risk-free investments. There is no guarantee I'll have a high income in the future. And there is no guarantee that the value of my home will remain higher than my mortgage. 2. Peace of mind 3. I don't want to deal with mortgage loan servicers. My loan seems to get sold every couple years and I have to log into sketchy, outdated websites with web addresses like phhloansphereservicingdigital.bkiconnect.com.

1. If I put all the money I would have put towards the mortgage into savings and don't touch it then there is no risk. That money is FDIC insured and I get the interest monthly

2. I understand but see #1

3. This is completely fair but for 2.75% gain I'll put up with that

This is exactly why I was happy to find an interest-only jumbo mortgage at 3.xx% back in the crazy loan times (2006). Keeping that money in the investment portfolio, thus returning X minus 3.xx%, was significant. So you’re quite right, and it works in real life. But! It’s essentially margin risk — don’t do it if your investments aren’t comfortably larger than your mortgage.

There is no greater mental relief than owning your home outright. Until you do that then you'll never fully understand.

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