No. of 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
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