Personal finance

3 reasons not to pay off your mortgage sooner | Personal finance

The stock market, for example, is expected to produce returns in the range of 7% to 8% over the long term. Morningstar analysts expect a well-diversified equity portfolio to produce an average annual return of 8% going forward.

But above all, this return is accompanied by greater volatility. The standard deviation of Morningstar’s forecast is 17%, which means that annual returns will vary between -9% and 25% about two-thirds of the time. Over the long term, however, investors should expect their investment portfolio to exceed their mortgage rate.

The counter-argument here is that most investors would not borrow against their home in order to raise investment capital. It’s suboptimal from an economist’s point of view, but it can be optimal from a “I like to sleep at night” point of view. In today’s environment of high real estate values ​​and low mortgage rates, capital is readily available for those looking to take on more debt, but it can be found outside your personal comfort zone.

3. Paying off early means increased streak of return risk

Paying off your mortgage sooner means giving up adding more to your investment portfolio today. The effect is that most of your investments are compressed into a shorter time frame – the post-mortgage repayment – which increases your exposure to return streak risk.