Skip to main content
No. of Recommendations: 6
I created a spreadsheet some time ago to answer the question of whether paying off a mortgage was a good idea or not. I used monthly S&P prices back to 1871 to compare the returns of paying off a mortgage. I looked at two cases:

a) Invest an amount (X) in an S&P index fund for the term of the mortgage (15 or 30 years).

b) Apply an extra amount (X) to the mortgage. When the mortgage is paid off, invest the mortgage payment plus X in an S&P index.

I compared total values for every 15 & 30 year period from 1871 to present for both cases. Taxes were not considered since the amounts in case a) could easily be invested through a tax advantaged account and taxes would be owed on gains in both cases if invested in taxable accounts.

In my case ($200k loan, 4.875%, 15 year, $200 extra payment) investing yielded more in 81% of the periods. If you consider deducting interest payments, investing was better 97% of the time.

30 year loans at current interest rates show investing is better more than 95% of the time.

With that in mind, why didn't I max out my loan amount when I refinanced a couple years ago? When asked that question on another board, it occurred to me, I'm always more than willing to delay payment if I can do so at a low or no interest rate. I minimize my withholding and pay tax in April, I use my credit card for nearly all potential purchases, etc. But, I won't take on added debt and responsibility for the sake of making a few points of return. Things can happen such as losing a job, disability, etc. It's simply not worth the risk.

OTOH, the S&P is up 19% since my last refi.

Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
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.
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.