Paying off mortgage

[Delvon A Byrd]

Why is it bad to pay off a 30 year mortgage

In 7-10 years

[JD Martin]

Originally posted by @Delvon A Byrd:

Why is it bad to pay off a 30 year mortgage

In 7-10 years

 Define "bad".

Financially speaking, paying off a mortgage with a very low interest rate is usually not your best use of money. A mortgage with let's say a 4% interest rate after taxes is effectively 3-3.5% depending on original principal balance. Most investors are reasonably confident they can beat 3% annual return; even something simple like a total stock index mutual fund will on average net you 6-10%. Aside from that, paying off the mortgage means you have turned liquid assets (cash) into illiquid assets (real estate). This might not matter until you need liquidity and find no one wants to loan you any money on your paid-off house.

Of course, not everything in life is financial. If you have no other use for the money or don't want to invest in anything else, then paying off a mortgage is a place to park funds - and if you're already plenty liquid and the choice is going to be between leaving it in the bank at .25% annual or paying off a 3% note, well that's kind of obvious too. And some people can't sleep at night knowing they owe someone a dollar (you will always owe the government at least property taxes and insurance premiums to the corps unless you're crazy, but I digress). Or you may have some reason you want to lock up your liquidity - say if you were getting ready to die and wanted your kids to have a monthly income through a trust fund rather than a pile of cash to blow in Vegas.