JambokLive wrote:I have heard many talk about paying off the mortgage...that it is similar to "buying a bond" that has the effective rate of the payed off mortgage. Which on face value makes much sense, however it seems to me that once you do that your "stuck" with that return and "bond" forever and would not be able to take advantage of raising rates if or when it happens unless you do a re-fi or HELOC...and in that case you would be doing that at a higher rate thereby negating the whole concept.
But the same thing is true when you buy a bond. If you buy a 10-year Treasury bond for $10,000 with a 2% yield, you are guaranteed to get $100 every six months and the $10,000 principal after 10 years. You can't take advantage of rising rates; if interest rates rise to 4%, you won't be able to sell the Treasury bond for $10,000. (You can still sell the bond and buy a new bond with a 4% yield, but the new bond will have a lower principal value, so you won't wind up with any more money.)
There is an asymmetry in the other direction, which is a slight advantage for keeping the mortgage. If you have a mortgage at 5% and interest rates fall to 4%, you can refinance your mortgage, keeping the same principal but paying a lower rate. If you buy a Treasury bond at 5% and interest rates fall to 4%, the Treasury can't refinance its bond, and must continue paying the higher yield; alternatively, you can sell the bond for a capital gain and reinvest the larger amount at 4%. Municipalities and corporations can refinance their bonds, but only under limited terms (the "call" provisions in bond contracts).
However, the asymmetry isn't likely to be of any benefit to the OP; it is unlikely that the OP's mortgage rate will decline by enough to make it worth refinancing before the OP pays it off.