Debate - Pay off Mortgage early or carry into retirement?

In another thread, a debate started over whether one should pay off cheap debts before heading into retirement, OR
take advantage of the cheap debt by stretching the payments out as long as you can, and use the money to invest at presumably a higher rate of return.

https://wizardofvegas.com/forum/questions-and-answers/math/14095-check-the-math-on-my-15-vs-30-year-mortgage-calculators/2/#post245007

Since that debate was OT in the other thread, but one that I was finding to be very interesting, I would like to open the topic here.

Personally, I understand the math behind having a mortgage at 3%, and the opportunity to invest money at a 5% ROR, would dictate that making minimum payments on the mortgage and invest any excess to gain advantage of the 2% differential. However, my retirement strategy from age of 16 has always been to enter retirement with no debt. Having entered the housing market when mortgage rates were in the 10% - 14% rate, I can really appreciate the 4% rates we have available to us today.

Should interest rates climb back to double digits, I am sure I will regret not having a bunch of money borrowed at 4%. But, I believe peace of mind during retirement, is what I am really looking for. I'm sure paying medical costs is going to be all the worry I will be able to handle.

What say you?

Part of the discussion might also entail whether or not you're talking about the common public. The problem is that the majority of people won't take the 'saved' money and invest it. Whether you're talking about taking the difference in payments between a 30yr and 15yr mortgage, or anything else. Some people may even start out investing the money. But over time, something happens, they don't have to invest it, there's an emergency, and then it becomes a habit to not invest the money. Since those types of people aren't going to be investing the money anyway, they don't benefit from choosing a longer mortgage. Popular financial commentators and book writers understand that their target audience is these kind of people, and tailor their discussions to this point.

If someone DOES have the financial diligence and constitution to actually invest the money, then calculators are great for showing them how much they are saving or benefiting choosing one option or the other. Whether or not the average person HAS that diligence is a whole other matter.

The diligence to continue to invest the extra money, as opposed to treating it like free money, is probably the biggest fear I have had which leads me to desire to pay off the debts as soon as possible. I'm just not that confident that I would not fall into the trap of spending the excess.

There is an advantage to carrying a mortgage... some bank lawyer will be reviewing the safety of their collateral by checking for liens from street improvements and aluminum siding companies. Its a bit like paying a mortgage early. You've already paid off the interest, what is you hurry to pay off the full principle.

It is my opinion that 2% a year is not worth the risk ofthe markets, but as you and everyone else has touched on it really is a coin toss. Either way, congratultions for being able to retire... Many these days can't see that light at the end of the tunnel at all.

Quote: RaleighCraps

Personally, I understand the math behind having a mortgage at 3%, and the opportunity to invest money at a 5% ROR, would dictate that making minimum payments on the mortgage and invest any excess to gain advantage of the 2% differential.

This all depends on matching runtimes of the mortage and investments. If the mortage rate of 3% is only guaranteed for the next 5 years, but the 5% investment would bound your money for 10 years - this might not be such a wise investment.

Further: if your 5% investment fails and the debtor files for bankruptcy, you do have a major problem.

Quote: MangoJ

This all depends on matching runtimes of the mortage and investments. If the mortage rate of 3% is only guaranteed for the next 5 years, but the 5% investment would bound your money for 10 years - this might not be such a wise investment.

Further: if your 5% investment fails and the debtor files for bankruptcy, you do have a major problem.

Absolutely MangoJ. My scenario was assuming you were going to be able to get a consistent return, but is not real world, where things are constantly changing. I can imagine there were a few people who were holding 30 year mortgages when the rate had dropped to 6%, and thought they were getting a good deal by not paying down. But with cash getting <1% a few years later, they would have been hemorrhaging money.

Mortgage Interest relief that you get in the US would appear to be a big differentiator to advice for the rest of the world.

I'm doing both, paying down my mortgage faster than the 30 year mortgage I have requires, but also investing into long term stock funds (currently returning 5.8%). As I get tax relief on money paid into my pension, I use that refund to pay down extra on the mortgage (which is sort of opposite to the way around some of the advice for the US is).

I do believe in having some liquid assets in case of trouble (having a low mortgage, but no money in bank in case of trouble wouldn't be the best move, IMHO). Carrying a high debt to income ratio is to be avoided. Once you that's lowered, though, I can see arguments for not paying the mortgage as fast as possible. If you COULD pay it off in cash, then yeah, cheap borrowing might be a good idea. But if you CAN'T, I'd suggest getting to the point where you could quickly reduce your payments would be a good idea, so a 30 year mortgage would be more advisable if you can do over payments.