[DesertCat]

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Has anyone ever heard someone say "Damn, I sure wish I didn't pay off that house", or "Man I wish I had a mortgage" ?

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That's because they usually never do the math on how much it cost them. Or if they did, they're too depressed to talk about it.

I have a 5.875% mortgage. I have more than enough to pay off the mortgage sitting in my brokerage account, where it has earned far in excess of 10% a year for the last five years. If I had paid off my mortgage, I'd be very much poorer. But I might be a special case, I actually work as an investor full time.

It's not a simple decision for most people. You need to be confident that your long term return (risk adjusted) on your investment will be in excess of your mortgage rate. Some people (Buffett) think that index funds (the market) will be returning around 8% for the next 20 years, so it's not a huge win, esp. if you are borrowing at 7%.

And when I say risk, I'm not talking about "beta", a little number tha signifies how much variance an investment's price has (and is mostly useless for investors other than in option trading). Real risk is the likelyhood of permanent impairment in the value of your investment.

The risk of index funds is overpaying, i.e. you buy them at a market top and have to deal with bad returns for a few years until you catch up. Since an index fund is a claim on the net worth and income of a huge number of companies, there is little risk of permanent impairment. You buy a single stock (let's say, "enron") with all your money, you have a high risk of permanent impairment. A "risk adjusted" return is you r estimate of the +EV of an investment, incorporating the percentage likelyhood of a permanent impairment and how big that impairment might be.

The other side of risk is liquidity. You can't play games where you invest long term if you borrow short term. I.e. index funds aren't one or two year investments, you have to be committed to them for at least 5-10 years, if you are forced to sell at inopportune times, you're returns will be horrible. So any money you put in them you shouldn't require for living expenses or mortgage payments.

The grandest part of paying off your mortgage is that it's a "risk free" investment. You save what ever the current mortgage rates are each year, guaranteed, so any alternative "risk adjusted" investment returns have to beat that. Note: There is some liquidity risk, i.e. if you don't have a job it might be hard to get a bank to loan you the money back.