I know the numbers are simplified to make the point. I tried to illustrate that with my caveat at the end. I'll do better next time.JBTX wrote: ↑Sun Oct 25, 2020 11:22 pmThe problem with your example is if you are unemployed, you may need some of that $100k to pay other expenses until you are back on your feet. That is the purpose of additional liquidity.6bquick wrote: ↑Sun Oct 25, 2020 9:36 pmIn theory, you're right. it's a matter of degree. In reality, they are not at all the same thing. the difference is cashflow.
I have a $125k mortgage (PITI is $1k/mo) and $100k in taxable. therefore, I have 100 months worth of mortgage payments in taxable. Eight and one third YEARS of mortgage payments I have in my possession. If I get fired tomorrow, I'll have at least 8.5 years before I risk losing the roof over my head. If I take that entire 100k and pay DOWN my mortgage, I now have a balance owed of 25k (@1k/mo) and if I lose my job tomorrow, even though the mortgage is 20% of its previous value, I have 2 months instead of 102 months until I risk losing the roof over my head.
switch those initial numbers around, 100k mortgage and 125k taxable, I choose to pay OFF the mortgage, the wolves at the door are satiated much longer should I lose my job tomorrow because there is no mortgage anymore.
as with any hypothetical, there are confounding variables ad astra, but I hope you can see that from a monthly cashflow perspective, paying down a debt and paying off a debt are not even remotely the same thing in practice.
I can't count how many times people have posted variants of this. Somehow if you get rid of a large sum of money that makes you more financially secure, because the comparatively small payment has gone away.
The reason to pay off or down a mortgage is you don't need the liquidity, and pay down/off gives you the best risk adjusted return vs the alternatives.
I think we're saying the same thing. I completely agree with you that it is ridiculous to think that "Somehow if you get rid of a large sum of money that makes you more financially secure, because the comparatively small payment has gone away."
The problem with paying off/down a mortgage based upon your liquidity needs is that you can't be certain what tomorrow holds re: liquidity needs.
I think we agree on this issue, I was merely trying to explain how there is a very real difference, in practice, between paying OFF something and paying DOWN something.