linuxuser wrote:So, you are saying that if home_worth / home_worth + all_other_assets < 33% then pay off mortgage ?
The prior posts cleared up the question about the percentage. There isn't any magic right percentage but having a high percentage of your new worth in your home would be a red flag to me that paying off the mortgage might not be a good plan since you would not be well diversified.
Also, can you explain about the home equity loans?
Are people taking them out to pay off the mortgage, then turning around and hoping to get better than 1.99% (Penfed) from other investments?
Some people use that money to invest and a high percentage of the time it will work out well, but a lot of people did this in the dot com boom and the housing boom and they got slammed so this is not without a lot of risk.
It is important to remember that if you pay off the mortgage then you can also save your "mortgage payment" each month which will build up and get the advantages of dollar cost averaging.
The five year home equity loan would not be appropriate for this because that is too short a time frame. Using any ARM for this would also be risky since the rates can change.
If you wanted to do this then a 30 year fixed rate mortgage is likely the way to go but that makes your target asset allocation tricky to figure our since a mortgage is a lot like a negative bond. For example if you want to be 25% in bond, and 75% in stocks then if you have $100K in bonds, $300K in stock, and a $100K mortgage, then it is sort of like you are really 100% in stocks since the bonds and the mortgage cancel each other out. This is not exact but keeping a mortgage to invest the money is using leverage which always makes your investment riskier.