I’ll preface this with the disclaimer I may be missing something obvious but considering these assumptions:
– a person has a mortgage (at say 4.5% today) and they choose to pay that off monthly (not interest only)
– the opportunity cost of this investment would be a conservative 6%/year in ETFs or REITs (of course this is tentative and an average over the long run)
(See for return references: https://www.fool.com/research/reits-vs-stocks/)
Why would a person choose to pay down their mortgage rather than invest in the markets? The pros of greater liquidity in the markets and greater diversification in REITs seem to make it the preferable choice?
For context, I am a 24M considering the best route to financial independence for myself and future family.
Thanks in advance.
In: Economics
If you think of your house as a pure investment, the smart money is to keep a mortgage of 4.5% and invest your extra money in a higher yield vehicle. You may also derive an income tax deduction which will be in your favor. Of course, some investments are taxable each year and others are tax deferred, so there is that to consider, as well.
If you think of your house as a place to live, then you may want to pay off your house as soon as feasible so your family will have a place to live no matter what happens in your financial life.
There is not a “right” choice, but rather a preference based on your goals and risk tolerance.
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