Perhaps I have a different perspective than others.
I am recently retired and currently have a 30-year mortgage with a 3% interest rate for the first 10 years. This is courtesy of my mortgage company that provided a no-cost refinance with an interest rate lower than my father's mortgage from 1964. Although I do have the ability to pay off the mortgage, I choose to keep it because I believe that I can earn more on the money than my 3% interest rate.
There is also the potential that I may need the cash used to pay off the mortgage at some point in the future.
Having said that, I expect to pay off the mortgage balance by the end of the first 10 years. The interest rate will adjust and I expect interest rates to be higher then than they are currently.
This approach ensures that I have available cash should I need it as I adjust to retirement life. But once I settle in, then yes, I plan to pay off the mortgage.
For me it's less about the thinking that I can get a higher rate of return on my money than the idea that even if I lose half a percent to debt by investing in the safe bond market, liquidity and flexibility with my balance sheet.
There are so many more situations where you are in a far-worse position with paid-down debt than with a more robust balance-sheet arrangement.
A disability event, even with proper disability insurance, can be an absolute nightmare from a financial standpoint.
We've gone through this in a different thread, but while debt can be very toxic behaviorally, mathmatically, it's usually the PURCHASE associated with the debt that makes it so bad. For instance, if I were to borrow $200,000 @ 5% and just invest it at 3%, the drain on that would be $4,000 in net cost to me per year, with the ability to always pay it back.
However, if I drop $200,000 on an education that will get me no-better a job than someone out of highschool, from an economic standpoint, I lost that $200,000 to a lifestyle/mental-stimulation decision. If I use that debt to purchase a house, with 3% CC's on the front end and 6.5% realtor fees on the back, and huge operating expenses along the way and a RoR on value that will slightly lag inflation (once you account for house size, homes have actually lagged inflation), then you can see how while that may not be a complete waste of money, you've put yourself in a FAR more precarious position than just a cost of $4,000 per year that can be eliminated on a whim.
So debt isn't the problem. Our purchases are. Debt is just the tool that allows all the rationalization in the world to happen and result in gross overspending, and when people feel poor at the end of the first two years of owning an "investment" like a home, and they see that mortgage payment come due again, they rationalize it as the "debt" being the problem.
If people would analyze their purchases from a business-like standpoint, rather than that of a consumer who has a rush of enthusiasm, then they'd see that debt, properly utilized, is a phenomenal tool... it's just far-too-often used on the wrong things, or the "right" things, generally, but taken to such excess that they become more consumption than investment.
This is part of the reason that I think a lot of people who choose to get a fancy car a couple years out of college are possibly not making as poor a decision as the guy who buys a house, doesn't rent it to any buddies, and doesn't need the 4 BR 2 car garage, and therefore could have been renting a bedroom somewhere or splitting a 2 BR apartment with a friend. Especially if that doesn't end up being the house he raises a family in, so he ends up paying a realtor to sell it for him and re-pays CC's on a new place.
Keep in mind, I am NOT saying the following:
- Buying a modest home with space you value in a good neighborhood/district is a BAD decision.
- Getting an education to advance a real career is a bad decision.
- Using debt to buy a reliable vehicle that meets your utilitarian needs is a bad decision.
Oh and don't have kids... financial decision #1!
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
- Thomas Paine