Mortgage rates are in the news again as the average rate on a 30 year fixed mortgage reached 4.6% this week. It was the highest the rate has reached in the last 7 years – up 0.7 percentage points from where they were at last year. Fifteen year rates are also up – reaching 4.15%.
These rates are still incredibly low relative to what they have averaged historically. Since 1971, the average 30 year fixed mortgage rate is about 8%. They have been as high as 18.6%, in 1981, to as low as 3.3% in 2012.
I’m a proponent of paying off your mortgage early as a risk-free way to give yourself a 4.6% investment return. I’ve written about friends that think that in this low interest rate environment it is better to invest the money in equities and that has been a winning strategy for most of the last decade. Those folks have made a bet that has paid off handsomely.
That said, if you have a short horizon to reach your escape to early retirement and FIRE (financial independence & retiring early), it’s probably best to pay down that mortgage now and give yourself one less worry. We paid ours off about 4 years before I quit working and have felt great about it ever since.
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4 thoughts on “Paying Off Your Mortgage As Rates Rise”
We seem to be following a similar path to yours Mr. FireStation! We paid off our mortgage last year, and are now about three years away from our target date for financial independence and early retirement. It felt good to earn the “guaranteed” return that we did when we paid off the mortgage, and eliminating what had been our largest monthly expenditure has helped make it easier for us to focus on getting the rest of our financial ducks in a row as we get closer to FIRE!
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Yes – that is the same exact path that we were on. The guaranteed return is quite a nice benefit!
At 4% , without an investment with a bigger ROI, to pay down a mortgage seems to be a good decision (some etf has same ROI). Another gain is in the comfort to know there is no debt anymore and any check of the fluctuation rate…
Mine actual is still little (1.8% – europe) but my first one was 8.3% and I paid in 8 years (instead 28)
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As you say, for us there is a lot of comfort in not having a mortgage!