I have so many friends, co-workers and family members who are focused on paying down their mortgages. I paid a little extra here and there, but not much. Why shouldn't you pay down your mortgage?
First, mortgage rates are very low. Let's say 4%.
Second, the mortgage is tax deductible. If you are in a 20% marginal tax bracket, you only pay 3.2 after taxes (.04*(1-.2)).
Third, long-term you can get avg 8% on your investments, pay your 20% tax rate and end up with 6.4% (.08*(1-.2)) which is double what you get by paying off your mortgage.
Yes, the mortgage payoff is guaranteed and the other can fluctuate. But even if your investment returns go down to 4% for some time (breakeven point), overtime, they will return to the higher mean (regress to the mean).
Still not convinced? Insurance is one of the most conservative of industries, Right? They do this every day with insurance premiums and annuities sales proceeds. They know long term, they will pay their clients small guaranteed amounts and reap the large long-term rewards of much higher returns. Annuities and whole life insurance payments are slam dunks for them.
I can tell you first hand. It works!
