It may be straightforward but it's incorrect because it ignores fact that the time value of the liability may not equal the mortgage rate. When you add up your net worth today, you are counting a dollar of present assets as offset by a dollar ofHootingSloth wrote: ↑Fri May 13, 2022 12:54 pm Interesting. I think it is typical to calculate net worth as assets minus liabilities and so decreasing a liability, e.g. a mortgage, by $100k increases net worth by $100k. The prepayment saves additional interest and so in the future further increases net worth by the accumulated amount of saved interest. Or, in other words, the prepayment increases your net worth at a given time by the difference between what your mortgage balance actually is at such time from what it would have been under the original amortization schedule. Seems much more straightforward and more consistent with how net worth is typically defined than this very complex suggestion.

*future*principal liability. Instead, you should be offsetting your assets today by the

*present value*of your total future liabilities (principal + interest), which requires a discount rate. Prepaying the mortgage / exercising the "optionality" locks in that discount rate at your mortgage rate. So the future "saved interest" which prepayment avoids is exactly equal to the difference between your nominal future payments (P+I) and their present value. Thus, whether your net worth comes out ahead "at a given time" depends principally (pun intended) on whether the discounted future payments are valued at more or less than the outstanding principal at the time of payoff. Functionally, this is determined by the difference between the mortgage rate and the actual discount rate (i.e. the return you could have gotten had you invested the funds instead of paying down the mortgage) which is of course only knowable in hindsight. I believe this is what NiceUnparticularMan was referring to when he said:

NiceUnparticularMan wrote: ↑Fri May 13, 2022 9:36 am Paying off long-term fixed-rate debt has the same returns risk as investing in matching nominal bonds, and then adds in the risks involved in lack of liquidity.