Mortgage free , a goal a lot of people aspire nowadays. It’s how I got started viewing my finances differently and more specifically my take on risk. I went on paying off as much as I could as fast as I could. The math was extremely simple, I had an interest rate on my mortgage of 5,35 % and was getting 0,25% or thereabouts on my savings acount.
This turned out to be a smart move , especially when bying a new house, there was some money left after selling the old house and clearing the old mortgage. This made the proces easier , there was no need for stretching towards the maximum lending capacity. We carried on paying off the mortgage at the same pace. The math was still in out favor, despite getting a significant lower interest rate of 2,7%. In the mean time the savings account produced only 0,05%. Full disclosure , I do not take into account any tax reductions or other tax advantages because they differ for everyone.
At some point I became aware of the fact that nothing in terms of housing was cheaper than any of the alternatives. Including a maintenance provision. All other alternatives like renting or buying a smaller house are more expensive. Even social housing is costs more , which I do not qualify for.
So all other alternatives are pricier. I started wondering if my extra mortgage payments still made sense. Isn’t it better investing these sums in other more liquid investments ? The mortgage will take care of itself in the remaining time the mortgage still has too run.
For me the answer was yes, simple math with a return of 5% gets me more money at the end of the line and the money is available, it’s more liquid.
Isn’t this simply hedging the mortgage against more riskier investments ? Yes it is , I am using the time and the debt in the house too take on more riskier investments. Brings us back too risk, what is the risk ? I live in the house and in the current market there are no opportunities in finding something cheaper. The biggest risk is I can’t afford the mortgage payments anymore. And this would mean finding cheaper housing when that happens, which isn’t available.
It’s now time for kicking my habit of extra monthly payments and the little voice in my head saying , just get rid of the mortgage ! So I am taking these monthly extra payments and putting them in my ETF portfolio. Then at some point , likely faster I will simply have the remaining mortgage sum in liquid investments , which means I could at that point pay it off in full.
A very reasonable risk if you ask me.