Going “all in” on paying mortgage

[pepperz]

Has anyone prioritized their mortgage big time over taxable investing?

I’m talking about sending all investible funds straight to mortgage after maxing out tax advantaged accounts.

I realize that is *not* historically the path to maximizing long term ROI on those dollars however having zero mortgage sure does seem like an amazing way to protect your downside.

You would need less emergency fund, have less stress, be able to take more risk to catch up, etc etc.... but at what cost?

I’d love to hear from folks that have done it or regretted not doing it.

[7eight9]

In 2004 we put 50% down. Paid off the mortgage within 12 months by eschewing all other investing/saving and making the mortgage payoff the sole priority. The only regret is that if we knew the housing market would collapse a few years later we would have put down the least possible and defaulted once it was obvious we were deeply underwater (non-recourse loan).

[JoeRetire]

I realize that is *not* historically the path to maximizing long term ROI on those dollars however having zero mortgage sure does seem like an amazing way to protect your downside.

You would need less emergency fund, have less stress, be able to take more risk to catch up

How would taking more risk to catch up protect your downside?

[123]

Homeowners could easily whittle down the balence by sending in an extra (and explicitly identifying it as) principle payment each month. This would halve the term of the mortgage. Not fast enough? Then send in two extra principle payments a month. A systematic approach is likely to be more successfully adhered to over an exteneded effort than an 100% effort to dig oneself out of a mortgage hole. Moderation has its merits.

If you tie up all your funds in the direction of mortgage payoff you could be headed for a liquidity crisis in the event life throws you an unforseen situation that is outside the range of your emergency fund.

[HomeStretch]

It’s a personal choice and, in hindsight, easy to see which decision (invest in Taxable or pay additional mortgage principal) made the most sense financially.

In our case, debt of any kind really stresses my spouse. So for peace of mind, we decided to pay it off early. We refinanced several times to take advantage of falling rates. We maxed out our retirement accounts and channeled bonuses/excess funds towards our mortgage. We paid it off early in our 30s and never regretted the decision. When we later encountered job loss or reduced hours to spend more time with our kids, having lower monthly expenses due to no mortgage was much appreciated.

[KlangFool]

be able to take more risk to catch up,

pepperz,

You are taking on more LIQUIDITY RISK by paying off the mortgage. Hence, you might lessen your ability to take on other RISK.


There is more than one kind of RISK.


KlangFool

[JoeRetire]

A systematic approach is likely to be more successfully adhered to over an exteneded effort than an 100% effort to dig oneself out of a mortgage hole.

This is confusing. Why do you believe that approach would be more successful?

[1789]

Have you reached FI? If no then i would not suggest paying off mortgage.

[familythriftmd]

I am on a decently aggressive mortgage pay-down (pay off in about 6 years), but less so than before after all the BH posters recommended against it.
Also, my house is cheap, so that helps.

[Hyperchicken]

It's mostly emotional.

Lots of people who have paid off their mortgage comment that it "felt great" and that they "never regretted" having done that.

Far fewer people give numerical rundown of the outcome of their choice.

Minimization of regret is a powerful motive in personal finance.

[nick evets]

It's mostly emotional.

Lots of people who have paid off their mortgage comment that it "felt great" and that they "never regretted" having done that.

Far fewer people give numerical rundown of the outcome of their choice.

Minimization of regret is a powerful motive in personal finance.

How would you set up the calculation? I'm putting $1k/mo extra to our mortgage. You would compare against what, putting the same in...? Taxable is maxed, and we have a year or so of emergency cash.

[Vulcan]

Has anyone prioritized their mortgage big time over taxable investing?

I’m talking about sending all investible funds straight to mortgage after maxing out tax advantaged accounts.

I realize that is *not* historically the path to maximizing long term ROI on those dollars however having zero mortgage sure does seem like an amazing way to protect your downside.

You would need less emergency fund, have less stress, be able to take more risk to catch up, etc etc.... but at what cost?

I’d love to hear from folks that have done it or regretted not doing it.

We've paid off the house with taxable funds (after years of maxing out retirement accounts) before first kid went to college.

We are a "doughnut hole" family, close to but not quite full pay at some of the more generous schools, and his does not include home equity in finaid calculations, so we are saving 5% a year over keeping the funds in taxable.

[Vulcan]

It's mostly emotional.

Lots of people who have paid off their mortgage comment that it "felt great" and that they "never regretted" having done that.

Far fewer people give numerical rundown of the outcome of their choice.

Minimization of regret is a powerful motive in personal finance.

How would you set up the calculation? I'm putting $1k/mo extra to our mortgage. You would compare against what, putting the same in...? Taxable is maxed, and we have a year or so of emergency cash.

How can taxable be "maxed"?

[KlangFool]

It's mostly emotional.

Lots of people who have paid off their mortgage comment that it "felt great" and that they "never regretted" having done that.

Far fewer people give numerical rundown of the outcome of their choice.

Minimization of regret is a powerful motive in personal finance.

How would you set up the calculation? I'm putting $1k/mo extra to our mortgage. You would compare against what, putting the same in...? Taxable is maxed, and we have a year or so of emergency cash.

nick evets,

<<Taxable is maxed>>


There is no limit on how much money you could invest in the taxable account.


<< I'm putting $1k/mo extra to our mortgage. You would compare against what, putting the same in...?>>


I invest my extra money into my 60/40 portfolio. I compare my mortgage interest rate (3.49%) against my portfolio return.


Do you believe that your portfolio can return substantially more than your mortgage interest? Or, you don't.

<<we have a year or so of emergency cash.>>

I have 1 1/2 years.

KlangFool

[runner3081]

It's mostly emotional.

Lots of people who have paid off their mortgage comment that it "felt great" and that they "never regretted" having done that.

Far fewer people give numerical rundown of the outcome of their choice.

Minimization of regret is a powerful motive in personal finance.

We paid ours off in a while back. The expected "feelings" never materialized. Our mortgage was <$200K, so not a huge monthly burden anyways. Though the mortgage was gone, we only saved about $300 per month in interest. Everything else goes on, utilities, property taxes, etc.

The relief of owning your home isn't real anyways. The city or HOA can still take it back

We split funds between post-tax and mortgage payoff, but mostly, the funds came from a cash balance that had just grown over time.

[firedup]

I have always prioritized taxable investing and access to liquidity over paying off my mortgage, especially given my low interest rate (3%).

As I'm approaching retirement and my portfolio has grown, I guess you could say I'm going "all in" to pay off the mortgage. The main reasons are to lower my monthly expenses and reduce my sequence of returns risk in retirement. I could probably keep the mortgage in retirement; it's just my personal preference to pay it off.

Also, my outstanding loan balance represents a small percentage of my taxable assets and I've been able to pay off the mortgage with minimal tax burden as the result of stock/mutual fund sales and some tax loss harvesting.

[whodidntante]

I realize that is *not* historically the path to maximizing long term ROI on those dollars however having zero mortgage sure does seem like an amazing way to protect your downside.

I am mortgage free but don't be impressed. I paid off a 15 year note in basically 15 years. If I want leverage, and I do, I know cheaper ways to accomplish it than a cash out refi or a HELOC. And I will not lose my house if I get hosed.

A wealth destroying error is lifestyle inflation, buying more house than is in your best interests. National average housing prices barely pace inflation, and are a clear loss after expenses. So it sucks as an investment, but at least you can live in your big McMansion, fill it with lots of stuff, and your mom is impressed. It can be very difficult to dial back your spending on the style you become accustomed to. For some people, it's impossible.

But assuming you have a humble abode, a mortgage like any other debt is a short position on fixed income. So the effect on portfolio risk of eliminating a mortgage is similar to buying high quality bonds. It is entirely reasonable in my opinion to prefer prepaying a 3% mortgage to buying TBM. But don't use that as a excuse to wimp out on risk. You should take an appropriate amount of risk for your situation. A 500k paid off house and a 250k equity portfolio for a 35 year old is not great portfolio construction, in my opinion.

[3funder]

I vote against doing so unless your rate is high and debt makes you uncomfortable to the point that you feel you must.

[galving]

No regrets paying the mortgage off early.
Bottom line it was reassuring that if the pandemic knocked us out of the job market there wasn't much risk there.
From a $/numbers game it probably would make more sense to have a mortgage and keep the assets in the market but I'm fine with the decision.
It's a purely emotional play.

We celebrated with a nice bottle of champagne!

[Ben Mathew]

take more risk to catch up

This is exactly the problem. After paying down the mortgage quickly, you will have to take more risk on the portfolio to try to catch up if you want the same expected return over a lifetime. That's a problem because taking a little bit of risk over a longer period of time is better than taking a lot of risk in a small period of time. The former will be lower risk for the same expected return.

(However, Vulcan makes a valid point that if financial aid for college is a possibility, it can make sense to pay down the mortgage before investing in taxable.)

[Soon2BXProgrammer]

Has anyone prioritized their mortgage big time over taxable investing?

I’m talking about sending all investible funds straight to mortgage after maxing out tax advantaged accounts.

I realize that is *not* historically the path to maximizing long term ROI on those dollars however having zero mortgage sure does seem like an amazing way to protect your downside.

You would need less emergency fund, have less stress, be able to take more risk to catch up, etc etc.... but at what cost?

I’d love to hear from folks that have done it or regretted not doing it.

Yes, we paid off our mortgage before we had $1 in taxable investments.

[WarAdmiral]

I paid off my mortgage and i have not regretted it one bit. Owning your home free and clear is a great feeling.

Plus, all is not lost if you pay off your mortgage....every month you will have extra cash (which would have otherwise gone to mortgage) to invest in the markets.

[nick evets]

nick evets,

<<Taxable is maxed>>

There is no limit on how much money you could invest in the taxable account.

<< I'm putting $1k/mo extra to our mortgage. You would compare against what, putting the same in...?>>

I invest my extra money into my 60/40 portfolio. I compare my mortgage interest rate (3.49%) against my portfolio return.

Do you believe that your portfolio can return substantially more than your mortgage interest? Or, you don't.

<<we have a year or so of emergency cash.>>

I have 1 1/2 years.

KlangFool

Thx KlangFool -- sorry I meant 'tax-advantaged' -- 401k/TSP for me and my wife respectively. I feel 'invested enough' in the market between these accounts, and the alternative would be putting $12k/year into some savings account or CD: not a 60/40 fund. I agree, the latter probably would outperform but I don't want the risk.

[AZAttorney11]

A wealth destroying error is lifestyle inflation, buying more house than is in your best interests. National average housing prices barely pace inflation, and are a clear loss after expenses. So it sucks as an investment, but at least you can live in your big McMansion, fill it with lots of stuff, and your mom is impressed. It can be very difficult to dial back your spending on the style you become accustomed to. For some people, it's impossible.

This. So much this.

[KlangFool]

nick evets,

<<Taxable is maxed>>

There is no limit on how much money you could invest in the taxable account.

<< I'm putting $1k/mo extra to our mortgage. You would compare against what, putting the same in...?>>

I invest my extra money into my 60/40 portfolio. I compare my mortgage interest rate (3.49%) against my portfolio return.

Do you believe that your portfolio can return substantially more than your mortgage interest? Or, you don't.

<<we have a year or so of emergency cash.>>

I have 1 1/2 years.

KlangFool

Thx KlangFool -- sorry I meant 'tax-advantaged' -- 401k/TSP for me and my wife respectively. I feel 'invested enough' in the market between these accounts, and the alternative would be putting $12k/year into some savings account or CD: not a 60/40 fund. I agree, the latter probably would outperform but I don't want the risk.

nick evets,

How does putting an additional 12K per year into your house make you safer? It does not. You just put more money into an illiquid asset,

<<401k/TSP for me and my wife respectively. I feel 'invested enough' in the market between these accounts, >>

Are you FI now? If not, why do you mean by invested enough?

<<tive would be putting $12k/year into some savings account or CD>>


That may make you safer.


If you are unemployed now, how does the 12K into the mortgage helps you? How does it make you safer?

Either pay off the WHOLE mortgage or don't. Pre-paying a portion of the mortgage reduces your LIQUIDITY. It does not make you safer in a RECESSION.

I had been through too many recessions and economic crises. We are in a RECESSION now.

KlangFool

[hightower]

Has anyone prioritized their mortgage big time over taxable investing?

I’m talking about sending all investible funds straight to mortgage after maxing out tax advantaged accounts.

I realize that is *not* historically the path to maximizing long term ROI on those dollars however having zero mortgage sure does seem like an amazing way to protect your downside.

You would need less emergency fund, have less stress, be able to take more risk to catch up, etc etc.... but at what cost?

I’d love to hear from folks that have done it or regretted not doing it.

I am currently placing all our "extra" cash into taxable with the goal of at least maintaining a balance equivalent to our mortgage in there as my short term goal. We are no where close yet unfortunately, but a year from now we'll be probably half way there. I am not funneling it into the mortgage directly right now because I am undecided if that's smart or not. I just refinanced to a 30 year with 2.87% fixed. That's pretty darn good. But, at some point, I'd like to lower our monthly expenses and get rid of the mortgage altogether, especially if I change careers (which would end up resulting in much lower income). So, I have the "itch" to pay it off early, but I haven't scratched it yet

[MNGopher]

Back in the mid 90s thru mid 2000s I paid extra on my mortgage rather than investing much. I ended up paying off my 30 year mortgage in about 12 years. Interest rates were around 7% then, and I only had crummy annuity products through my work 403b at that time with 2% fees, so it seemed like a good decision at the time. I think mathematically it probably worked out about the same for me, but in most time periods I might not have been as lucky.

[milktoast]

Has anyone prioritized their mortgage big time over taxable investing?

I’m talking about sending all investible funds straight to mortgage after maxing out tax advantaged accounts.

Yes. I put all extra money (after maxing all tax advantaged savings) into my mortgage whenever the mortgage rate exceeded 1/CAPE.

Paid off my home just under three years into a 7/1 ARM

No real regrets so far. Just finished last month. My tax advantaged savings rate is roughly equal to my taxable savings rate, so obviously the taxable account is going to start growing now.

Would I have done better boosting my 70/30 portfolio? Probably.

[rixer]

We paid ours off early by sending an extra check along with each monthly payment. We never stopped till we paid it off. I was self employed and never knew what to expect for income. It was reassuring to have a home that's paid for. It still is and we're grateful for it.

[TSX]

Paying off your mortgage may caz wasting more money. You were left without your monthly payment, so you’ve got an additional money surplus, which most likely you’ll spend on something you wouldn’t.

[jsapiandante]

I would only pay off my mortgage when my investible assets are at 25x expenses after the mortgage has been paid. Even then, I'd probably still keep it knowing I sleep better at night having my net worth mostly in liquid assets vs an illiquid one should things get rough for a while. If the mortgage balance represented 20% of my net worth, I'd be more comfortable paying it off then but that's still a decade away for me.

[invest4]

As of now (47), my plan is pay down the mortgage closer to retirement with the goal to provide more flexibility in managing income during retirement including potential Roth conversions, etc. I am in the most expensive part of life (4 children with 2 in college) and making sure I have plenty of liquidity and any excess funds continue to go toward mega back door Roth. Since my first mortgage at 28 @ 8.25% (year 2000) and refinancing over the years at lower rates while putting available funds to work in the market; I believe this has yielded a better overall return. In the midst of refinancing at 2.625%, I still believe this will be the case as the return hurdle remains relatively low.

However, I do go through some periods where I get the itch to already start doing away with the mortgage...but have continued to resist thus far. I don't believe this is a right or wrong answer here...to each their own as there are many roads get where we want to go.

[vitaflo]

Has anyone prioritized their mortgage big time over taxable investing?

I’m talking about sending all investible funds straight to mortgage after maxing out tax advantaged accounts.

Yes, back in 2016, any extra money after maxing out tax-advantaged accounts we started to put on the mortgage. 2 1/2 years later it was paid off. Was there a big relief when it was gone? Not really. When you have enough extra money after maxing everything else to put on your mortgage, you're not dying for cash flow, so it's not as big of an event as it would seem once it was paid off.

That said, a year after it was paid off we took the summer off and went on a 2 month road trip. During this time it was really nice not to have to worry about a mortgage. When you don't have income, that's when it really feels good.

Would I do the same thing again in hindsight? Absolutely. I may not have had "warm fuzzies" when I got rid of the mortgage, but it's still one of the best things we've done, and gives us a lot more flexibility in life without the cash drag of a mortgage. To me that's totally worth it.

[flyingcows]

I had a 15 year mortgage but never prepaid it, all extra savings went to taxable investment accounts. Once I had 2x the payoff ammount in taxable I pulled the funds and paid it off

[260chrisb]

Has anyone prioritized their mortgage big time over taxable investing?

I’m talking about sending all investible funds straight to mortgage after maxing out tax advantaged accounts.

I realize that is *not* historically the path to maximizing long term ROI on those dollars however having zero mortgage sure does seem like an amazing way to protect your downside.

You would need less emergency fund, have less stress, be able to take more risk to catch up, etc etc.... but at what cost?

I’d love to hear from folks that have done it or regretted not doing it.

I think you do what makes most sense as it relates to your individual situation. I'm guessing you've got some taxable investments already so provided you've got a solid emergency fund and are maxing out your tax advantaged options why not. I'm not clear on what "be able to take more risk to catch up" means? Catch up on what? Lost returns? I'm currently not living in a paid off house but imagine the feeling of doing so is a pretty good feeling. Go for it! If you tire of it, restart investing in your taxable account. I'm 5 years in on a 15 year mortgage, have 9 to go, and am a year and a half from retirement and am considering the same approach to get mine as close to gone as possible over the next couple years.

[anon_investor]

I am doing the exact opposite after completing a refi to 2.75% 30yr fixed this year, I am putting my new found savings from a lower mortgage payment into VTSAX in my taxable.

[260chrisb]

In 2004 we put 50% down. Paid off the mortgage within 12 months by eschewing all other investing/saving and making the mortgage payoff the sole priority. The only regret is that if we knew the housing market would collapse a few years later we would have put down the least possible and defaulted once it was obvious we were deeply underwater (non-recourse loan).

Okay, I'm sorry; I simply don't understand this! In other words you would have preferred to let the loan that you signed up for go into default since it was non-recourse? Wow! Seems to me that logic created a LOT of problems in the economy didn't it? On a separate note; if you or any of us had the ability to foresee things like a housing market crash we wouldn't need to be taking out mortgages!

[7eight9]

In 2004 we put 50% down. Paid off the mortgage within 12 months by eschewing all other investing/saving and making the mortgage payoff the sole priority. The only regret is that if we knew the housing market would collapse a few years later we would have put down the least possible and defaulted once it was obvious we were deeply underwater (non-recourse loan).

Okay, I'm sorry; I simply don't understand this! In other words you would have preferred to let the loan that you signed up for go into default since it was non-recourse? Wow! Seems to me that logic created a LOT of problems in the economy didn't it? On a separate note; if you or any of us had the ability to foresee things like a housing market crash we wouldn't need to be taking out mortgages!

If I had only put 3% down and made the usual payments on a 30 year mortgage I most certainly would have let the property go into foreclosure. In my market houses fell 50%+. Defaulting on a non-recourse loan would be the logical thing to do if one was underwater by a significant amount.

[yatesd]

In 2004 we put 50% down. Paid off the mortgage within 12 months by eschewing all other investing/saving and making the mortgage payoff the sole priority. The only regret is that if we knew the housing market would collapse a few years later we would have put down the least possible and defaulted once it was obvious we were deeply underwater (non-recourse loan).

Okay, I'm sorry; I simply don't understand this! In other words you would have preferred to let the loan that you signed up for go into default since it was non-recourse? Wow! Seems to me that logic created a LOT of problems in the economy didn't it? On a separate note; if you or any of us had the ability to foresee things like a housing market crash we wouldn't need to be taking out mortgages!

I agree, this behavior is not ethical and should not be condoned on this forum. A "mortgage" is a contract/agreement to pay someone back.

[Bogle_Bro]

In 2004 we put 50% down. Paid off the mortgage within 12 months by eschewing all other investing/saving and making the mortgage payoff the sole priority. The only regret is that if we knew the housing market would collapse a few years later we would have put down the least possible and defaulted once it was obvious we were deeply underwater (non-recourse loan).

Okay, I'm sorry; I simply don't understand this! In other words you would have preferred to let the loan that you signed up for go into default since it was non-recourse? Wow! Seems to me that logic created a LOT of problems in the economy didn't it? On a separate note; if you or any of us had the ability to foresee things like a housing market crash we wouldn't need to be taking out mortgages!

I agree, this behavior is not ethical and should not be condoned on this forum. A "mortgage" is a contract/agreement to pay someone back.

Breaking a contract is not in and of itself unethical

Nor is defaulting on a loan inherently immoral

[UpsetRaptor]

It’s better than investing in bonds, at current yields.

[familythriftmd]

Breaking a contract is not in and of itself unethical

Nor is defaulting on a loan inherently immoral

Could you explain in a little more detail?

[rockstar]

Has anyone prioritized their mortgage big time over taxable investing?

I’m talking about sending all investible funds straight to mortgage after maxing out tax advantaged accounts.

I realize that is *not* historically the path to maximizing long term ROI on those dollars however having zero mortgage sure does seem like an amazing way to protect your downside.

You would need less emergency fund, have less stress, be able to take more risk to catch up, etc etc.... but at what cost?

I’d love to hear from folks that have done it or regretted not doing it.

Since I couldn't go on as many trips as I had planned this year, I put that cash against my mortgage. I feel like it's my illiquid bond allocation now.

[grettman]

I did.

After maximizing retirement accounts, I threw the rest at mortgage. Why not? Most of my retirement is in equities. I just paid off my mortgage a few weeks ago.

[stoptothink]

After maxing out 401ks, Roths, family HSA, and pair of 529s (to state deduction max), we diverted everything to the mortgage for 4.5yrs. The house is paid off as of May and we're quickly building a taxable account. In hindsight, definitely wasn't the best decision for overall wealth-building, but I don't regret it for a second.

[mr_brightside]

Breaking a contract is not in and of itself unethical

Nor is defaulting on a loan inherently immoral

Could you explain in a little more detail?

a mortgage contract is a mutually agreed upon promise to repay OR face the consequences (foreclosure).

you default and the bank gets the house back

unethical / immoral would be to NOT pay the mortgage but still insist you have a right to live in the residence. also immoral would be to not pay and damage the property out of spite (i have heard stories of this happening)

I've never defaulted -- but i understood why people did and took the hit.

------------------------------------------

[corn18]

We paid our mortgage off last year. Used our taxable account to do it. Felt good. Then we moved this year and decided a 2.75% 30 year fixed rate mortgage was hard to pass up, so we took it. Sold the other house and decided to invest in our 60/40 portfolio vs paying it off. Plan to retire next year @55 and carry the mortgage to maturity at 84. NPV of a 30 year fixed rate 2.75% mortgage with 2% inflation is almost free money. And a great inflation hedge.

[Bogle_Bro]

Breaking a contract is not in and of itself unethical

Nor is defaulting on a loan inherently immoral

Could you explain in a little more detail?

For starters, there are many legally excusable justifications to not fulfill a contract. Examples in parenthesis.

1.Force majeure- an "act of God", such a natural disaster, make it impossible to fulfill the contract (flood prevents delivery of shipment)
2. "unconscionable" terms/circumstances - such as one party was under duress at signing (requesting a prenup on the day of a wedding), lack of capacity (last minute changes to wills in a diminished state of mind), fraud (actively concealing material details)

But let's say that none of those justifications exist.

Legality and morality are not perfectly aligned (and never can be because morality is subjective), but they are pretty well correlated.

Civil law (torts, contracts, etc) aims to make the damaged party whole. Criminal law punishes actions detrimental to society

Breach of contract, absent fraud, is a civil issue , and the remedy is to make the damaged party "whole". Generally contracts have recourse included in the terms, and if a judge sees the terms as reasonable and fair ("equitable"), those terms are enforced. When a particular recourse is deemed unreasonable by a court's judgement or by legislation, then clearly those who we have entrusted to make & interpret law have come to the conclusion, for whatever reason, full recourse is not in the best interest of society.

In this scenario, walking away from an underwater loan, the government has decided to protect the consumer. There are reasons for that. Risk of default is part of being a lender. That risk is priced into the terms and spread out over thousands of contracts. If it was not an acceptable risk for the lender to lend in a nonrecourse state, they wouldn't do it.

At the end of the day, "it's just business". You can argue it's unethical, or you can argue it isn't. There is no universal agreement on that, but the legal system is a good place to start.

[Tdubs]

Has anyone prioritized their mortgage big time over taxable investing?

I’m talking about sending all investible funds straight to mortgage after maxing out tax advantaged accounts.

I realize that is *not* historically the path to maximizing long term ROI on those dollars however having zero mortgage sure does seem like an amazing way to protect your downside.

You would need less emergency fund, have less stress, be able to take more risk to catch up, etc etc.... but at what cost?

I’d love to hear from folks that have done it or regretted not doing it.

Since I couldn't go on as many trips as I had planned this year, I put that cash against my mortgage. I feel like it's my illiquid bond allocation now.

That is how I view it, too. I know many advise against viewing the mortgage as part of your asset allocation, but I do now that i am within several years of paying off anyway. I can get a guaranteed 3.375% after-tax return on an illiquid investment by paying off or I can buy into a liquid bond fund of uncertain near-term returns. I'm going with the former and compensating by reducing my bond allocation a bit. I have enough in emergency funds.

[pepperz]

Great points here. Would you mind expanding on your point about getting leverage cheaper than cash out refi or HELOC?

I realize that is *not* historically the path to maximizing long term ROI on those dollars however having zero mortgage sure does seem like an amazing way to protect your downside.

I am mortgage free but don't be impressed. I paid off a 15 year note in basically 15 years. If I want leverage, and I do, I know cheaper ways to accomplish it than a cash out refi or a HELOC. And I will not lose my house if I get hosed.

A wealth destroying error is lifestyle inflation, buying more house than is in your best interests. National average housing prices barely pace inflation, and are a clear loss after expenses. So it sucks as an investment, but at least you can live in your big McMansion, fill it with lots of stuff, and your mom is impressed. It can be very difficult to dial back your spending on the style you become accustomed to. For some people, it's impossible.

But assuming you have a humble abode, a mortgage like any other debt is a short position on fixed income. So the effect on portfolio risk of eliminating a mortgage is similar to buying high quality bonds. It is entirely reasonable in my opinion to prefer prepaying a 3% mortgage to buying TBM. But don't use that as a excuse to wimp out on risk. You should take an appropriate amount of risk for your situation. A 500k paid off house and a 250k equity portfolio for a 35 year old is not great portfolio construction, in my opinion.