I disagree about Dave's House-Payoff Plan as being illogical. We can't just compare the interest rate you pay on your house to your expected return rate on an investment and say if a>B then do A. There has to be adjustment for risk, and then there's going to be an intangible psychological return on owning outright vs. not. For some folks that will be huge (that's me) , for others not so much.
Well I'm sure I won't change your mind, but I do appreciate the opportunity to at least elaborate. . .
There were two points you made in favor of paying off a house early. First was due to "risk" and the 2nd was a psychological boost of owning a paid-in-full home. I'll have to assume the "risk" is the risk that you lose your job and are no longer able to make the payments? So do correct me if I've made a wrong assumption. The psychological boost being the somewhat euphoric feeling of no longer having a mortgage? Correct that if I'm wrong.
To the first point: "Risk". If I have $50,000 in the bank and owe $20,000 for a car, am I really in debt for my car? Am I taking a risk? Am I stupid for not paying off the car and reducing my cash to $30,000 and owning my car outright? Is there really a difference between having $50K in cash and owing $20K on a car or having $30K in cash and owing $0 on car? Transfer that scenario to a home. Let's say I owe $150,000 on a house and have $150,000 in the bank. Am I taking a risk? Is that position more risky than owing $0 on a house and having $0 in the bank? If one accelerates paying off a house by paying an extra $100,000 against principle couldn't they instead come to a point where they have $100,000 in savings and owe $100,000 on the house? That's rhetorical as the answer is quite obvious - there is no question that someone could save what would be accelerated payments until the day comes that the savings is equal to the payoff. There are two important things to consider. First is the actual interest rate on your mortgage. Let's say you have a 6% rate. Many people will realize a tax deduction which results in a tax savings which effectively lowers that 6% rate down to, for example, 4%. So, you've borrowed money at 4%. If you follow Dave, you'll pay extra principle and save the 4% rate. If you listen to Dave, but ignore his accelerated payoff advice, you'll save money at a 12% return (that's the rate he preaches you'll realize if you invest in "good growth stock mutual funds"). With certainty, if you owe $100,000 and pay a 4% APR while you hold $100,000 and collect a 12% APR you'll realize an 8% spread with virtually no risk. The risk is gone because you have saved enough ($100k) to pay off the mortgage ($100k). Haven't you heard him talk about how nice bank lobbies are? All banks do is borrow money at a low rate (your savings rate) and loan money at a higher rate (what you'd pay when borrowing money) - they buy all that nice stuff on the spread. . .
Quite simply: Save at 12% and payoff as slow as possible the 4% (or 5% or 6% - whatever). Why 15 years? It's safer, smarter, and you'll be wealthier paying off a 15 year note as slowly as possible. You'll be even more wealthier if you take 30 years to pay off that same note (even at a 1/2 percent or so higher rate).
Dave often mentions "risk" - but he never quantifies or even explains it very well. I'm not sure what he means, but from ever angle I can see it there is less risk in having a $100K in savings and owing $100K on a house than having $0 in savings and owing $0 on a house. If you owed $100,000 on a house and were given $100,000 dollars, wouldn't you put the $100,000 in mutual funds that earn $12,000 per year and pay the $4,000 in interest against your mortgage and come out $8,000 per year for the rest of your life knowing that with the stroke of a pen you can make the debt go away (along with your cash)?
Now we can talk about the psychological benefits of having a paid-for house. Let's say you have a $300,000 house. On one hand, you can pay off that $300,000 and have $0 in cash or you can owe $300,000 and have $300,000 in cash. If the latter case, you'll owe 4% APR per year or $12,000 and earn $36,000 per year return (12%) - for a net income of $24,000 for doing absolutely nothing. That's $11.54 per hour for doing nothing. If you earn $18 per hour you can pay your house off in full and earn the same $18 per hour or you can save that extra money and earn nearly $30 per hour. Seriously, if you do the very simple math it's should be psychologically devastating to pay your house off an earlier than 30 years.