Mortgage Debt and Asset Allocation 

Did you consider your mortgage when deciding on your portfolio asset allocation?

I hope people realize that this is arguably the top 1% of all informative financial videos on this platform. Great content - i expect this page to explode in 2019. Well done

This channel doesn’t have 2 million subscribers because....? Oh wait he brings valuable content... that’s why.

For younger people (ie under 40) I'd both keep the mortgage and go with a 100% equity portfolio. Just make sure you also have a 6 month emergency fund ready.

I sold my expensive home back in late 2006 and bought a smaller home cash. All I can say is not having a mortgage allowed me to take on more with my life because I had no fear of being homeless. I started my own business. Then I used that money to start buying rental homes during the crash. Now I use the rent money to buy stocks. I basically went from being worth 150K in 2006 to 1.8M in 2019 and semi retired now at age 52

I usually explain it a bit simpler: imagine you live in a paid off home, would you mortgage it to invest in stocks (or bonds as you suggest)? For many people that explanation breaks them out of the mental accounting problem.

if you cant find a bond that is yielding ~20%(depending on tax bracket) more than your mortgage rate, pay off your mortgage. In most circumstances its makes sense to make your home your "bond bucket".

Great way to think about mortgage debt! I was able to payoff my mortgage last year after owning for 10 years. Now I use that extra cashflow to invest in 100% equity portfolio long term.

Wow, this is an ENTIRELY new perspective presented here! That's great food for thoughts! :)

This is a genuinely incredible video. Thanks for making it.

I've been watching Ben's content backwards these last couple months. Factor tilts and this video are the two things that have truly shocked me. Thank you for your work making this channel and the RR podcast!

Came back to watch again. Great advice getting people to think outside the box.

Great, sensible and well-documented information as always, Ben! Thank you for sharing your knowledge and thoughts.

This was one of your best videos, tnx.

Brilliant analysis and the sensible advice. You are most definitely the best kept Canadian secret.

Another great episode. Currently I have about 90/10 equity/bond investments. Considering this it makes sense for me to make an additional mortgage principal payment since this has the same practical effect as increasing bond diversification while reducing debt.

Very thorough analysis! Great video!

I sincerely appreciate these videos, being a professional in investing and wealth management myself. The analysis in this video is similar to an ALM perspective on an individual's total balance sheet. This touch upon the specific ALM perspectives of interest rate risk and equity risk and the conclusions are correct. However, another perspective would be the liquidity risk for the total portfolio. And there, the funding may very well have a longer commitment than the bond assets. This means that it may be wise to loan money with a loan committment, and placing it as liquidity. You never know when you may need liquidity. Also, getting older, new financing may be harder to achieve without a salary to back the mortgage and interest payments. Then you end up with a real estate asset, amortized, that has a low liquidity.

Thanks - this has been my philosophy but I have not seen many folks talk about it this way. When looking at my asset allocation, i include the mortgage as a negative against my bond portfolio and adjust my asset allocation accordingly. There are two reasons I haven't paid it off - i was aggressively paying it off out of my income but not out of savings until TBills started paying more after taxes than my mortgage. While this holds, it doesn't make fiscal sense to pay it off from savings as long as my asset allocation strategy accounts for it. Plus, we'll probably sell within 5-10 years.

This is an awesome video, thanks. Just three things: (i) I think the liquidity premium should be taken into account too. Property is illiquid while bonds are liquid. You may sacrifice certain return in exchange for liquidity, which can even make investing in bonds safer, and (ii) the low/negative correlation of bonds and equity returns. If there is a market crash, bonds would go up in value, my mortgage would go (theoretically) down in value but that value can’t be realised.

The problem in including mortgage in our portfolio asset is also that a bond is liquid asset while a house is pretty illiquid. The only way you could use your home would be through getting HELOC or reverse mortgage and I don't know how much better off that would be vs renting and having bond allocation. I would love to see more video regarding incorporating other assets such as house into the portfolio calculations.

I was fortunate to have a small mortgage so paid it off very early and started investing in a low-cost Vanguard index fund. I'm now looking to invest in small cap stocks and value stocks to capture some of the benefits this would give me. As for investing in bonds, well, I currently pay into my NHS pension and since this is financed through a mix of general taxation and the issuing of UK treasury bonds, I'd say the monthly contribution to my pension is all the stability i need should all my equity investments not pan out as I like. Besides, considering I don't have a mortgage or any other debt investing in the markets helps me to achieve one of my most-cherished dream which is to set up my own scholarship fund to promote the values and principles of community education. It's something I might not be able to achieve without taking on the risks and benefits of investing in equity.

So young here 😊 it’s been a long journey. Please keep up the good work!

I'd just explain this as, "Would you borrow money at, say, 4% interest, to invest it for possibly a 6% return?" It comes down to the amount of risk you're willing to take, on your time-horizon, et cetera - the same factors as in really any investing decision.

Interesting.. You could also change the question around. “If you did not have a mortgage, would you take one in order to increase your portfolio?” If the answer is no, then paying off mortgage is sensible. Another aspect is that paying off mortgage frees-up more cash flow. Not having these monthly payment is nice.

I didn't consider owning debt (bonds) vs owing debt (mortgage etc.) until I read your article a few weeks ago. I was putting into the Canadian bond e series fund from td as part of my portfolio. Since that article I've stopped putting into that and consider the extra on my mortgage as my fixed income portion. I'm waiting to cash it out but it's down due to the rising rates. Your videos always seem to take a financial view from a bit outside the box which I'm sure lots of people like myself appreciate.

As you know there are financial advisers out there that highly recommend leveraging your home to increase your portfolio, even to the point of suggesting you're crazy not to. It would seem that more often than not this probably serves their interests more than their clients. Every time I watch one of your videos it gives me a new perspective, a more informed one! It's just about time for a serious conversation, I'll reach out soon.

Great video! I think the situation needs to be looked at carefully. Bonds are liquid, the home is illiquid. If you can repay the mortgage in full by selling the bonds, the argument makes total sense. If you can only repay part of the mortgage, you still have liquidity (repayment) risk, for example if you lose your job, and having at least some bonds can come handy. While one should have some spare cash for emergencies, having bonds can provide an additional return without sacrificing liquidity.

Smartly presented information. As you alluded to (especially via the Big Banks in Canada), the mortgage penalties in Canada are quite substantial (especially given the so-called "discount rate" being added into the equation.

thanks for another great video Ben!

I like your method, slow and exhaustive.

I just removed the whole real estate from the portfolio by renting the apartment😂 Indeed, there are benefits: no mortgage payments, no property tax, no leveraged risk of property depreciation, no transfer tax, freedom of movement whenever needed, etc. P.S. I realize that I still own a bit of real estate through REITs that sit in the global market ETFs, but that doesn't bother much😅

Being long and short the same asset is not sensible. Solved my problem right there!

Just the info i needed!

Very interesting thoughts on a mortgage being a bond you’re selling to the bank and how it should be incorporated into your asset allocation.

You should make more videos Ben, they are great

Great point of view!

Totally agree with everything in this presentation. Excellent. Whether to keep bonds in the fixed income portion of your portfolio vs paying off your mortgage depends on the current yield of bonds vs your mortgage interest rate. Let's assume you have a low interest rate on your mortgage of around 3%. If you don't, you need to refinance. The current yield on a common bond fund Vanguard BND is 1.59%. Would you borrow money at 3% to invest it in a fixed income investment yielding 1.59%? Probably not, but there is another consideration. If you have a fixed rate mortgage the interest rate on it will not change. Moving forward, if interest rates fall, the bond portion of your portfolio will rise in value. If interest rates rise, the bond portion of your portfolio will fall in value. You are exposed to interest rate risk by investing in bonds. By paying off the mortgage you get a guaranteed return of 3%, but it will be fixed at 3%. There is no way to gain or lose more than 3%. The question is, is it worth it to have access to borrowed capital at a pretty good rate of 3%? It depends on what you are going to do with the money. If you plan to buy or keep bonds today with the money, and hold them for the long term, I would say no. You are losing money doing this, and gains or losses due to yields rising or falling in the future, will be cancelled out by rising or falling bond values, for the most part. But what about the possibility of using the money for a more lucrative investment that may come along in the future? I remember when interest rates were 6%-8% for a long long time back in the 80's and 90's. If rates rise like this, and stay that way, the bank is stuck collecting 3% interest on a 30-year instrument. Any new money you try to borrow then will be at that rate as well. If you have a 3% mortgage it can be valuable to have access to that money, IF you have a plan to put it into action. Paying off a low rate mortgage in the 80's would have been a terrible decision, I can assure you. For instance, if interest rates rise, real estate values may fall, and you may be able to pick up a rental house at some point in the future earning well over 3%. While I do not expect rates to rise dramatically like this, you never know. They certainly don't have much room left to fall. I have chosen not to pay off my 3.25% mortgage for this reason, but I am 98% in stocks and real estate, and the amount of the mortgage is relatively small. If I owned any bonds and planned to keep them, I would sell them instead and pay off the mortgage. I chose to pay off a different commercial real estate loan earlier this year, but it was at 5.75%.

Next level thinking!

Interesting analysis - well illustrated! Personally, I generally prefer to rent and invest in an 80-90% equity portfolio. I just don't like the idea of tying up so much wealth in an illiquid asset. I know you've covered renting vs. owning a home in previous videos, though. Cheers, Doug

Thanks for the vid and valuable information! The reason that someone would not pay off its mortgage is that the money stuck in your house is not fluid. In other words if towards the end of someones life you still want to stay in your home and at the same time have money available to live you better keep your mortgage.

Ben, The only exception to your recommendation would be if you are comfortable being a leveraged investor. If you believe in leverage and want to use leverage to invest in stocks then HELOC is the cheapest way to access capital with the lowest cost of capital. Without a mortgage, I am unsure if you could get access to cheap HELOC capital. But I agree it changes the risk profile. Also its hard to think of a 50% stock 50% bond portfolio in today's climate of interest environment (given any investment horizon) and what we know of the possible trajectory of the interest rate regime going forward. But it does help to illustrate your point.

Hi Ben, thanks for the wonderful and informative videos. I have been keenly watching your content and even though they provide really good value for the time, the only small problem for me is the absence of more visuals. I feel like adding more animation or visuals will certainly makes the videos more interesting and easy to understand for audience like me who are not so used to hear so many numbers in one sentence. lol. Just a suggestion! Cheers mate!

Great points, really unintuitive but valid. However, liquidity is an issue. I would also expect most people who have a mortgage to have a much more aggressive portfolio with little or no bonds. In that case, they are explicitly taking on more risk, with the expectation that their arbitrage will be positive. But if you’re talking about retirees with a conservative portfolio (60/40, 50/50, etc.) this is great information.

After wraping my head around the notion it would make sense not to hold any fixed income position in my portfolio for as long as I have a mortgage, I had reached the conclusion that the only thing that would justify not to go ahead with a reallocation to 100% equity was behavioral considerations: do I have the stomach to endure a huge drop in the markets? With that in mind, I finally pulled the trigger march 2020. With insight, it might not have been the best idea to reallocate while the markets where in free fall because of the high volatility and larger spread (let alone I switched from mutual funds to ETFs, increasing the randomness of the operation) - although I've been lucky and only loss a few bps from timing in the adventure and it was really important for me to stick with the rules and protocol I decided before hand, proving to myself I could keep a a cool head while the markets acted crazy. I now see my mortgage as a short position and if interests raise by a lot in a few years I'll accelerate payments - but no bonds in the portfolio for me for as long as I have any mortgage debt. Seeing this video again after a few years, I know that's thanks to this and the related newspaper article that I'm more rational now managing my finances and do so in a more comprehensive way, so thank you!

Yes, I did, but I just entered the workforce. So I decided 100% stocks for the portfolio and save at least the same amount for a possible future downpayment. I took into account the time I need to save for a sufficient downpayment (and a new (used) car etc.) and when I'll probably want to buy. Still not sure about buying and I hope I'll stay course for the next year's on the stockmarket. I'd always pay off debt if I had spare cash or bonds, as long as I don't have to pay penalties. The possibilities of extended leverage on my primary residence come at a cost I can hardly put a number on. But I like to sleep sound at night

Thx for an eye opening video Ben. My only concern is that you would be enable to rebalance your portfolio given a major market correction ? Or am i missi g something?

Absolutely love your videos Ben, good job! Quick question though about your comment "There could be some consideration for taxes payable on selling $400,000 of the portfolio, or penalties to pay off the mortgage in a lump sum, but I will ignore them to keep things simple." I don't understand why this assumption is made. Taking out money of portfolio from a RRSP would imply a major difference in the end results doesn't it ? While I understand that the logic also applies to no portfolio transfer (by simply increasing your mortgage payments + increasing portfolio risks on the decreased investment), I wonder if your "pay off mortgage from portfolio" scenario is limited to taxable portfolios ? Thanks again for your videos!

Great video. Just one question. How would you account inflation in your calculation. Since the interest rate if fixed.

Amazing content. Never thought of it this way. It’s funny that Dave Ramsey gives this same advise of all equity investing and pay o ff your ‘dang’ mortgage but he doesn’t really know the why like you explain. It’s just something he has come to from experience. Kinda like how Buffet was doing factor investing before we knew what factor investing really was. He just had the experience that value investing would get better returns. Again really appreciate these amazing videos. I feel like I’m getting a graduate level education in finance and economics for free. Do you ever plan on teaching at the university level?

I am considering a similar scenario: interest 3.75 Fixed, Mort 379k, six more years of a $251. per month for MIP, windfall expected soon so no tax implications for selling off, no more interest income deduction (neighbor to the South) so I lose nothing on that point. From a cash flow perspective it looks pretty good as well. I free up $26,300 annually on my 379k for 6 year until my MIP burns off. That is like a 7% return? The $26,00 includes additional principal. Great video btw!

Actually, a substantial better strategy in your example is to sell the portfolio, pay off the mortgage and then re-borrow money against the house and invest in 50/50 portfolio, a classic "Smith Maneuver". This way your mortgage costs are fully tax deductible which will further push the net interest cost down as long as investments are held in taxable account.

Not sure if this applies here in the US with mortgage interest deduction. With my 22% and 24% marginal tax rate. my mortgage interest deduction would have cover 24% marginal tax rate.Still more than 30 years from retirement, I have been advised by my financial advisor not to put anything towards mortgage. of-course it is case by case.

Hey Ben, you should consider that a short fixed income position is also kind of an inflation lottery ticket. Sure it doesn’t happen all the time, but when it does, it has quite an effect. I suspect that this isn’t systematically being priced into credit, due to erratic monetary policies. So I wouldn’t be the one to pay off a mortgage early, just because of this

Thanks for another great video. There's one thing I can't quite understand: How did you get to the figure of 95% in shares being similar to the example of having a mortgage?

"Another way to think about this is that when you have a mortgage you are short fixed income" - Ben Felix He says it quickly but it's quite profound what this means. However I've seen cases where having a mortgage is short the fiat currency. Especially in low interest rate environments and high inflation. Kind of how what the western world is in now. Can you comment on this Ben? Thank you.

Thanks, Ben for the analysis. Think Morgage as short Bond makes the treat off clear. But on the same line of argument you should also not invest in a 60/40 portfolio on margin, right? And you should not do risk parity, which also include ,using leverage…

I have an interesting question and example Lets say you are set to receive an inheritance of $50,000 from your parents, to help you huy a house. Lets also say you already have 40k invested in equities in a TFSA and 8k in your bank account for emergency savings. In the event that you buy a house, would you sell your equity funds and add to your gift money? Or would you sit on it?

What about mortgage rates being under 2% for five year fixed? Still better to pay down debt rather than invest? Would a government pension also be reason to max risk with few bonds and 95% equity indexing? Thanks

2 things. In the 95% exposed portfolio, the loss is greater and to recover that loss you need to make a larger gain? And with a house, you get to leverage your positions with very little capital. In the example, you only go over the negative scenario but the positive scenario is just better when you keep the house and the mortgage. Not saying you are wrong but seeking clarification.

I’m curious how the 95/5 portfolio plus a mortgage comes out compared to these two.

here's a few things I considered, 1 a mortgage interest only applies to the first half of the loan term, remember it's front-loaded also referred to as the rules of 78's so halfway through the term of the loan the money is interest-free. 2 on the other hand if your home is paid off you don't have the risk of being homeless if the market crashes 80 percent and you lose your income. the security of a paid-for house is a huge benefit if your world turns upside down.

Great video, Ben! I really appreciate your thoughtful insights! What are your thoughts on duration? Taking a 30 year mortgage is going short fixed income for a 30 year duration. Buying a bond is going long fixed income, typically for less duration (7.5 years for the Vanguard Total World Bond fund). Does a long term mortgage make sense with duration mismatch in light of today’s ultra-low rates? This is attractive only if rates rise over 30 years to overcome your other considerations I suppose. Alternatively, does the duration mismatch offer any better investment plans for the mortgage proceeds than 100% bonds? Say you match 50% of your mortgage balance with bonds and 50% of your mortgage balance with equities. You would be a leveraged investor, but your home equity and the bonds act to safeguard you against a liquidity crunch or having to sell stock in a downturn. And you should have strong odds of coming out ahead over 30 years, right?

What about returns from the property? I.e. the mortgage costs 3% but the property also returns 3% but on a LVR of 80%, you’re 3K ahead on a $500k property. By borrowing, you’re holding a larger asset base which is appreciating and there’s not reason to have such a conservative bond / stock mix.

So if understand, paying down the mortgage and not having to pay the interest is like a risk free investment that earns interest of the mortgage rate (money you didn’t have to pay out) hence because of that “safe” investment you just made, you can increase your risk exposure with your stock portfolio to balance out your overall risk exposure... is that right?

Genius!

In the US you get significant tax deductions for interest expenses which alters the comparison. The recourse options are also favorable to the borrower depending on the type of loan you have so risk is somewhat mitigated.

I mostly agree, with the exception that you can’t eat a house. Suppose my girlfriend and I get into financially stormy weather, after depleting our emergency fund we could dip into our investments. If that money is tied up in the house, the only way to dip into that is to sell the house.

Hi Ben! Really enjoying your videos and a bit in the same conundrum at the moment. I have 20k that I could invest in paying some of the mortgage off and advance in the months left to my 20yrs mortgage. Ran a quick math analysis comparing that with investing the 20k into index funds and even the pessimistic scenario with 4/6% return was a better deal than paying off the mortgage (interest rate is very low 0.94%). Do you agree with this am I missing some factors? I assume paying off the mortgage is lower risk than investing in stocks but hey :)

furthermore, if you loose your job or income revenue during a crisis, you might end-up having to sell your assets at a loss just to keep up with mortgage. I'd rather pay the mortgage in fast forward mode and go 100% equity. advanced mortgage payment allows me to pay it even if I need to flip burgers for a living.

I have a 175k euro mortgage on a 300k house. I decided to put some saved up money in low cost ETFs, 100% equity, instead of paying off mortgage. I want to retire a few years early and don't need the money for another 30 years. I hope to get a higher expected return this way. The risk might be high, but the interest rate is now below 2% and I can pay off the monthly mortgage payments without a job, for a year with current savings. Is this a good scenario to be in, or should I play it more safe and pay off my mortgage?

So you may want to make sure there is no prepayment penalty before you drop the cash. Some lenders regulate how much is allowed to be paid off. Also, when you pay this off is a big factor isnt it? Most of the front half yrs basically are interest and you dont take much dent out of principal. I hate that set up. So the earlier you can do this , the less interest cost damage or lower the interest to principal ratio. Good info here and it is true that when I see someone present the case for keeping mortgage, and they give the return you would sacrifice..that rtn is usually a 100% stock type return. Also, stock market rtns are rarely average anyway, they fluctuate. Although over 15 yrs they have always been positive. I think about 94% of the 10 yr spans have been positive. Anyway, thx for the vid.

I'm a small business owner and was only given the option of a 5.75 % mortgage rate 30 yr fixed because my income is shown from tax returns and bank statements and not w-2. I think it is better for me to pay off the mortgage with extra money than to invest, but I can always swap back and forth depending on if there are good growing stocks.

Hi Ben, thanks for your information channel. I learned a lot. Just wondering if you have a document version of this video? Thanks a lot!

Thank you for covering this question. I'm planning to buy a house soon and its a dilemma that I've been contemplating : how much to set aside for a downpayment and how aggressively to pay down the mortgage. The advice here makes sense to me but seemed a bit contradictory from the advice in an earlier video about Investing With Leverage. The earlier video suggested that investing with leverage can be a good idea for a young investor who can afford to take the risk of more asset allocation in stocks. Isn't a mortgage effectively investing with leverage?

Thanks for this Ben. Do the considerations around this change when you're dealing with a windfall? In terms of whether you would pay off your mortgage completely or use some or all to invest?

Home loan is a loan..which is debt

@ben felix: what if you are going to invest in a 90% stock portfolio anyway regardless of keeping the mortgage or paying it off. In this case, obviously keeping the mortgage and invest in the portfolio will yield higher returns than paying it off

Ben, for a young professional that does not have a large portfolio, would it make sense to simple sell off their portfolio to aggressively pay off the mortgage first, then re-invest in their portfolio? Or would not buying real estate and continuing to pay rent while investing in ETFs until, say, one maxes out their TSFA and RRSP, make more sense? Would Smith Maneuver make sense for a first home?

Current age is a factor that should be considered. The older we are, less time we have to rebuild our investment account.

Dept works when it works and when it doesn’t psychologically it becomes crushing. Mentally I understand formulas, emotionally using your home for investment doesn’t add up. I will give up returns for options and certainty.

Hi Ben, I understand you're trying to make a case when you have both bonds in your portfolio as well as a mortgage. In this case, you are better to use the bonds to buy stocks, in which case you can take more risk and increase your asset allocation in your portfolio to more stocks. What if, however, you're not heavily invested in bonds in the first place, as you're still quite young. Does it - from a risk point of view - make sense to go high in stock allocation AND have a mortgage at the same time? This would of course mean your net worth drops considerably during a market drop, but leaves you time to wait the drop out as time goes on AND consequently possible higher overal net worth at the end?

What if the options are either make extra mortgage payments, or invest the same amount in US savings bonds? Right know, Series I bonds pay better than most mortgages, specially if you consider mortgage interest deductions...

Does this not negate the principle of time in the market though. yes it is more leveraged depending on your emergency fund cash allocation but it is more likely to have higher returns +dividends (yes taxable) can often outrun morgage interest meaning the 10% per year gains can be made. I see this as a less risky version of people buying multiple homes as a realestate portfolio, arguable highly risky IMO but does often lead to wealth. waiting for 0 debt seems unsuccessful in everything i have seen, why business rarely holds no debt.

OK I’m 74 and still working and make about $500k per year. I have a 15 yr mortgage for $340k at 4% and about $1 million invested in REITs, preferred shares and individual; stocks. I plan on working for 1 more year so what are your thoughts regarding paying off the mortgage?

What about liquidity risk? Isn't it better to have 100k in easily liquidable bonds sitting around plus the 100k in mortgage instead of no additional cash cushion?

I have a mortgage and no portfolio, what should be my move? Great video's btw.

What should I do if I have a $500k mortgage now with zero investments but I'm willing to take $100k of equity from my home to invest in a low-cost deversified index fund? Is it worth it?

Ben, amazing video but I'm not really sure I understand what to do if my approach to investing is already to be 100% stocks (my plan is just to jam as much money as possible in XEQT). What's my approach for my first house if I decide to buy one within the next year?

Great video, What is your take on p2p investing?

So fast forward to today? This holds true, except remove excess payments to all time low mortgage rates rates and stay fully long equities with continued low monetary rates and QE in spite of inflation concerns?

Not true because your short fixed income position will have a fixed rate and your long fixed income position won't

Let say I have a mortgage of $200,000 at 4%, and an investment of $50,000 yielding 8% return and $50,000 in cash. If I use the cash to increase my investment to $100,000 at 8% that would equal my mortgage. But if I use it to down pay my mortgage to $150,000 my investment would be short of $2,000 year in relation to my mortgage. So I would use $30,000 to reduce the mortgage and $20,000 to increase investment. What do you think Ben?

What about 100% equity via a HELOC w/ a mortgage

I completely agree, but.....aren't you ignoring the behavioural issues? By that I mean the mortgage and the house value don't go down in a crash (well, at the least the house is not marked to market daily and you're living in it so much less likely to sell it), but the stock and bond portfolio does. An investor who can tolerate the volatility of a 50/50 portfolio likely cannot tolerate the volatility of a 90/10 portfolio. So a mortgage and 50/50 portfolio is not the most efficient but it likely is the arrangement most investors can stay the course with so leads to the best outcome. Like somebody said, the best strategy is not the most efficient one, it's the one you can stick with.

Hi Ben. Great video as always. Would you care to talk about the following: a person who has a real estate portfolio, and who takes out a home equity loan (or rather, a “home owner’s line of credit”) of up to 80% of the equity-value in the person’s real estate portfolio, and who then invests the money into a non registered stock market account, and who can then write off the interest on the home owner’s line of credit from his taxes. How much real estate equity would a person need to have to make this a worthwhile financial exercise? I believe some people call this a Smith manœuvre but I don’t think that’s really the right term for it. Something to consider talking about perhaps? I know your thoughts about rental properties and that it may not be an ideal investment in relation to the work that one has to put in etc, but this tax sashay where you can invest 80% of your properties’ value and write the loan off from your taxes seems like it may be worth doing, provided that one has enough equity. I know you’re a busy guy but, any thoughts?

This takes the example of 3% mortgage interest rate but most likely that rate will increase to 5% or higher in coming years. Not accelerating mortgage payments is a bet that interest rates will always stay low

I'm unsure really why a person wouldn't want to pay off their mortgage. Leaving out the peace-of-mind argument, if one can lower, or even better, eliminate their fixed costs each month that would be the way to go. Variable costs like power, water, gas, are easily paid when there isn't a 1900/month mortgage to keep up with.

If you have a mortgage and buy stocks, you are in fact buying stocks on borrowed money.

You know its funny. , even though I think it would be dumb for me to consider buying a house, when I think of how I would evaluate doing so I do think of mortgages in this way. But hey. You know me. I am debt averse and I love stocks, so I my eventual goal is to have a paid off house eventually. And the plan is to save a huge down payment and pay it off asap once I move in. The thing though is I have no idea where I actually wan t to live (I am thinking Austin though).