bennevis, sounds like you pretty much have made up your mind and are comfortable with the decision. I think that's the important thing. I did want to clear up a few misconceptions that showed up in another one of the posts before I drop this. Again, I'm not trying to convince people to do it my way, but I really remain astonished that so many people seem to make this decision based on emotion rather than an analysis of the odds.
. . . I tend to go for the mortage payoff. In part, because it is a timing issue, if the market is good (uptrend) over a period of years then chances are that this will be a benefit to have your house equity in the market. If there is a bear market, then your home equity is going down with the market.
Actually, paying off the mortgage is more of a timing issue. If you pay off a 30 year mortgage early, you are betting that you will not be able to beat the interest of the mortgage over the remaining years on the loan. Keeping the mortgage is more of a 30 year buy and hold decision based on the long term data.
. From 2000 to 2003, which option would have been better? You would have had a 30-40% drop in your investments and your mortgage payment would still be due each month. If you had paid off mortgage, you would have had a 5-6% return (your mortgage interest rate), plus no mortgage payments.
But this is a short term way to look at the problem. The analysis needs to be done for the duration of the loan -- if you take a long term view of things. In my first post in this thread, I explained how to do the long term probability analysis rather than look at just a few years. As I pointed out, the results for a 30 year duration loan will give you a fairly high (~75% to 85%) probability of coming out ahead over the long run. Of course, we all understand that over the short run anything can happen.
. In hindsight it is easy to say well the market turned around in 2003 so it is OK. However, the mental and emotional pain of seeing your $200,000 house equity evaporate and still have to make house payments is something to think about.
And certainly the emotional issue is very personnal. Many people do not feel comfortable with a long term buy and hold strategy during short term dips. As I pointed out in my first post, you can evaluate the worst case historical scenario for your personal situation in order to gain an understanding of how much the worst economic times in our history would have cost you using this strategy.
. In short, you can "take" more volatility if you know the roof over your head is not going anywhere. Another way to view this issue, is would you take out a equity loan on your house to invest in the market? It is a gamble that may payoff, if it doesn't it is a high price to pay.
This is very emotional language, but I don't think the reasoning is very sound. If you are paying off your mortgage, and the market doesn't beat your mortgage interest over 30 years, then you end up making less money over the 30 years of payment than you would have made had you paid it off. Odds are against that happening, but there is a chance that you end up down by a small amount.
But if you could have paid off the loan before retirement, then you must have had at least that much money as surplus over the money you were going to use to retire. In order to lose your house, you must assume that you have lost most of your retirement nest egg and most of the payoff money that you started with, within the duration of the loan. Now . . . that may be possible, but if it does happen, I would suggest that you have greater problems. In fact, if you are in that much trouble that early in your retirement, I'm not sure owning your house is really more important than buying food and clothing. With money, I can alway rent a roof. But I can't buy food with a roof. Starving to death with a roof that you own is not very appealing.
Again, if you just have an overwhelming emotional draw to owning the house outright, then that's what you should do, but I do think people would serve themselves well to actually run the numbers for their situation before they make that committment.