UnThreaded | Threaded | Whole Thread (33) | Ignore Thread Prev | Next
Author: joelcorley Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 311073  
Subject: Re: Why is Mortgage Debt "Different" Date: 3/5/2014 5:52 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 4

You wrote, If you had sufficient assets to comfortably pay the mortgage and retain a good efund, most would not try to discourage you from paying off your mortgage. A few will, because they prefer investments over paying off a mortgage.

Boiling it down, its an argument of a fixed return vs. an unknown opportunity cost (what you might or might not make while investing). The lower the return from paying off the mortgage, the more attractive the investment becomes.

For instance, if you could get a 30yr FRM with a 0% APY, would you pay it off? I mean it's interest free money for 30 years! Couldn't you find something to invest in that would be certain enough to give you more than 0% APY that you could invest with enough confidence to sleep at night?

Once you accept that premise, just add a point (or some fraction of a point) to the interest rate until you don't think you can sleep at night. There. That's your tolerance. As long as your mortgage rate would be above that figure, it might be better to try to pay it off. If at or below that rate, invest. For some people, CD rates might be their threshold. In that case, they're probably always going to favor paying off the mortgage.

Others might accept that the S&P500 has had an average annual total return for all calendar 20-year stretches of 11.2% and the worse-case calendar 20-year stretch has been 3.11%. In my opinion that would put a reasonable cut-off rate somewhere between those two figures. My own mortgage sits at 3.50%. My tolerance is probably somewhere in the mid 5s, so my current mortgage will not be getting prepaid.

- Joel
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (33) | Ignore Thread Prev | Next


TMF Credit Center
The Motley Fool Credit Center arms you with real tools and simple messages, that will help you in every credit situation.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.