Can I ask why we treat non-mortgage debt differently? I know some people rather pay off their mortgage aggressively for peace of mind while others rather invest to have a higher rate of return, and of course others find a happy medium. But curious to know what people think of attacking a mortgage vs. increasing savings rate for retirement investment.
Here’s a few reasons to treat it differently:
- It’s backed by an asset: The loan is backed by home that you live in which is worth more than the debt (except rare scenarios where you are temporarily under water). That means at any time you can sell the home and clear the debt. (This escape plan doesn’t exist for cars, credit card debt, student loans, etc).
- Real estate goes up in value: In general, homes go up in value. So slow paying the debt isn’t a slow walk towards bankruptcy as interest spins out of control. The opposite, in fact. The value of the home, in combination with the payments being made will well outpace the debt. Borrowing money to buy things that plummet in value (like cars) is a good way to stay broke. But if the asset is going up in value, the math is very different.
- Mortgages are really big: Being debt free is great. But so is investing. And since the above two are true, I think it’s best to get started investing before you go after the mortgage.
Here’s how I would prioritize my money:
That said, if you’re on “Phase 6” above and you like the idea of not having a mortgage, I say go for it! The bank never forecloses on you if you don’t have a mortgage. And having no mortgage payment, and instead directing that money to investing early and often, sounds like an amazing way to build massive, stress-free wealth!
Thanks for laying this out. I guess a mortgage still feels like a burden but at least it’s backed by an asset as you said. Yes, I’m on phase 6 so am very happy to have this decision of more mortgage payments or more investing!