Since these thoughts represent a well-organized summary of the thinking of many considering this question, and since each offered easy clarifying counters -- I thought I should respond:
Clivus1 wrote:1 Mortgage rate are at generational lows. As others have mentioned your effective return on paying down the mortgage is well south of 4% If it ever makes sense to invest rather than pay down the mortgage the time is now.
The prices for cash flows are what they are. It's not as if one can borrow at "well south of 4%" and get returns "well north of 4%" without taking on more risk. People can (and do) make the same arguments when rates are X% and other investments can be seen as making more than X%. Nothing special about 4%, except psychologically it feels safely low by historical standards.
Clivus1 wrote:2 Inflation will dramatically shrink your mortgage payment as a fraction of income over 30 years.
This is a true statement. However, inflation expectations are built into the discounted prices of all cash flows the mortgage is being compared to. This works in the investor's favor only if inflation exceeds expectations -- if inflation meets expectations, it's a wash; and if inflation is lower than expectations, the investor making a decision on this basis loses.
Clivus1 wrote:3 Early savings rate plays a large role in portfolio success. It will be mathematically very challenging to "catch up" later with a more aggressive savings rate.
Paying down a mortgage is
savings. One is deferring consumption and getting a return equal to the mortgage rate. The mathematics of compounding works precisely the same for paying down debt as it does for investing.
Clivus1 wrote:4 Ask yourself which is a stronger position in 15 years: Mortgage paid off or funds in the bank able to pay off the mortgage + residual balance.
Part of your equation is missing. Since more risk is being taken, there could be a "- residual losses", which could quite obviously lead to a weaker position than a paid off mortgage.
For an investor with a well-thought out plan, this question is simple:
- If one doesn't want to take on more risk, he invests in a higher returning investment of equivalent risk if available, otherwise pays down the mortgage.
- If one wants to borrow to invest at higher risk, he does so.
(if one invests while maintaining a mortgage, he is doing one of these two)
Neither of these really has to do with having a mortgage, except that many people have mortgages, and that tax-advantages and the collateral of their homes make them a lower cost method of borrowing for many.