malraux wrote:

I did admit it was a rough number. But the 4% is a decent starting point as a guide as its a safe withdrawal rate.

It WAS a safe withdrawal rate, in the past, for people who retired at a certain age. We don't know if it will be safe in the future.

malraux wrote:

I see the point about no mortgage being an asset, but its a poor one. By that I mean that first, I have to keep putting money into it (taxes, insurance, repairs, etc). Second, regardless of if I have a house valued at $250k, $500k, $1m, etc, it doesn't help me fiscally beyond holding my stuff. More clearly, a person with a $1m house but little retirement is in a much worse position relative to a person with a $500k house and $500k in savings. Its not that the house is unimportant, its that it is only a small piece of the total puzzle.

You are mixing up so many things here. Property taxes, insurance, repairs, and so forth are ownership costs. They are incurred whether there is a mortgage balance or not so they don't come into play in a discussion about whether to pay off a mortgage. And comparing the situation of a $1 million house and no retirement savings to a situation with half a million in savings and owning a house worth half a million is like comparing apples to celery.

The question is how to allocate net worth given a certain house value. There is nothing wrong with allowing the house value to go up or down except that changing the house is a major decision and involves many factors that are not financial.

The two tables below illustrate the decision. In both tables the house is assumed to be valued at $500k. The first column is for the person not paying off the mortgage and investing extra money in savings. The second column is for the case of paying off the mortgage. equity fraction of 30% is assumed for the person keeping the mortgage but that could be changed as well. The bottom line of each table show the net income from the decision (income from savings minus the amount spent on mortgage interest).

The first table assumes that the savings is invested somewhat aggressively to earn a 6% return. In the second case a safer investment is assumed (treasuries perhaps, or CDs.) Both situations assume the same mortgage rate of 4%.

Mortgage rate 4% 4%

Equity 30% 100%

House value 500000 500000

Mortgage balance 350000 0

Mortgage cash flow 14000 0

Savings 850000 500000

Net worth 1000000 1000000

Savings return 6% 6%

Income 51000 30000

Mortgage expense 14000 0

Net income 37000 30000

Mortgage rate 4% 4%

Equity 30% 100%

House value 500000 500000

Mortgage balance 350000 0

Mortgage cash flow 14000 0

Savings 850000 500000

Net worth 1000000 1000000

Savings return 2% 2%

Income 17000 10000

Mortgage expense 14000 0

Net income 3000 10000

Obviously paying off the mortgage produces a higher return under the safe investment scenario and keeping the mortgage produces more income if more risk is tolerated. It all comes down to whether the mortgage rate is higher than the return produced by alternative savings. Neither choice is always better or worse.

It is interesting in this case that the OP is considering buying silver. There is essentially only one reason to hold silver and that is as an inflation hedge. Precious metals have not done their job in keeping pace with inflation over long periods. But let's assume that they do in the future. We should also assume that real estate values also keep pace with inflation...which they have done in general since Roman times.

That means that if we experience high inflation both the house value and a silver investment will go up (not a prediction but a consequence of the assumptions). But the leverage of the mortgage will make it go up faster. So, if you expect high inflation it might be better to hang onto the mortgage.

What about deflation? Well, then we'll all be in trouble.