Few things in life are a given. Fewer things in personal finance are.  


But, history indicates that the personal preference is to forgo analysis, avoid doing the math and just follow some simple "rules of thumb." After all if we can withdraw 4% during retirement (maybe, maybe not), purchase 10x our earnings in life insurance and subtract our age from the number 100 to find out what percentage of our portfolio we should have in stocks....why bother to run any numbers?  The answer's right there for all to see, it involves no analysis or work. The "rule of thumb" must work, I mean if it didn't work, it wouldn't be a rule of thumb would it? 

Well time tested as it might be, the question of "should you pay off your mortgage" or save more money toward retirement instead seems to have finally gotten some air outside of the rule of thumb world.  

In a recent St. Louis Post-Dispatch article  the questioned was asked of a number of financial professionals who all had basically the same response...it depends!! Yea! A vote for "it depends!"

It depends because, well, it depends.  As you might read in the article, much more debt exists post-retirement in America than we believe.  Paying off the mortgage has in many cases become a thing of lore.  

And, if you consider that we're about as near a bottom in interest rates as we're ever going to get, paying off your mortgage now should come with one substantive word of caution....the equity you create by paying down your debt may be equity you never see again. If you were to "leverage" your mortgage debt today, we could assume I think that at rate in the 3-4% range, after allowing for a deduction for mortgage interest, you're highly likely to arrive at a net lending rate that will be less what the reasonable projection for market returns would be.  That would seem to indicate that you can make more money by investing your money than paying down your debt. 

Math would then seem to indicate that if we get back to mortgages in the 7-9% range, we might not be able to get the same result.  That could mean that the equity you create today might not be accessible (at least and have it work mathematically later on) if interest rates cycles repeat.  And, as someone once said, "the future may not repeat itself, but in certainly rhymes." Last time that happened we went nearly 14 years before the interest rate shift made getting your hands on that money a worthwhile mathematical effort. 

So before take a leap of faith by following the rules of thumb, consider that some reasonable analysis might be a better way to chose your path.  

More on "rules of thumb?" Read my earlier blog post on this same topic here.