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Comment by jessedhillon | Hacker News Reader

It make no sense for most people to pay off their house aggressively. Refinance periodically if you want to lower your payments, but blowing a lump sum on your mortgage principal over a compressed time period is almost always more expensive in opportunity costs.

Quick question: I put $100k in your pocket right now. Would your life be more improved if your mortgage principal was reduced by $100k, or if you went and did something else with it? I think most people could find something better to do -- start a company perhaps? Invest in a rental property? Start a kids college fund?

And again, if you did want to put that into your mortgage: refi.

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If you completely ignore risk then what you say is true (especially with interest rates so ridiculously low). However, if we're talking about improving lives, I personally find value in eliminating debt (including the mortgage) as quickly as possible because such obligations represent risk. I could apply all these extra mortgage payments to other things (rental property, stock market, etc.), but then I stand a varying (but non-zero) chance of losing money on those things and still being stuck with a mortgage. I'd rather wait a few years and take those risks with my own money instead of money borrowed from the bank, and I think that economic woes of late suggest we'd be better off if a few more people thought this way.

If you have a fixed-rate mortgage with a monthly payment at a comfortable level, then the mortgage should represent a very low source of risk. Having 12~18 months of payments in the bank saved up for a rainy 1.5 years is a great plan to mitigate that.

The idea of personal comfort is interesting, I think people should attempt to quantify the value of being mentally released of debt burden -- maybe for some there is very high value in it. For me personally, I have always been comfortable with the idea of strategic debt as a way to advance certain goals.

I think what your approach neglects is the fact that being conservative is risky as well. In the last five years, of course, it would be hard to make that case. But unless you die soon, there will definitely be times where you will be left behind -- relative to your economic peers -- if you don't finance your activities externally.

I actually think of it the opposite way: if you put money into paying down debt, you know exactly what the return on that capital will be. It's the interest rate on the debt (in pre-tax dollars for mortgages, after-tax for almost every other form of debt). Money is fungible; any money that's not locked up in debt-service is freed up for other purposes, like investing in other assets.

I tend to advise people I know to pay down debt first these days, because they're usually paying around 6-7% interest, and where else can you get a 6-7% risk free investment? T-bills are at about 3%, inflation-adjusted T-bills are often less, CDs are under half a percent, and savings accounts are basically nothing. You can potentially get more than that in the stock market, but that comes with additional risk, so for a lot of more conservative folks it doesn't make sense to carry a debt and simultaneously invest in the market.

6-7% would be pretty high for a mortgage these days. I was quoted a little over 3% a month ago, and my credit is not the greatest.

For student loans, I agree with you, and I'm putting all my extra money into them while saving the bare minimum for a bit of security if something bad happens.

Wow, maybe I should go buy a house. When my parents refinanced in 2004 they thought interest rates were historically low at 4.5%.

>I was quoted a little over 3% a month ago, and my credit is not the greatest.

You have to consider things like origination fees and points, though. Everybody thinks they're going to stay in their new house for decades, but the average is something like four years.

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