Should you ever pay off your 3% mortgage early? – A wealth of common sense

Working in the asset management industry has changed the way I view and interact with so many other aspects of my life.

I’m constantly thinking about the daily interactions through the construct of the stock market and the economy. How does this company make money? What does it mean for consumer spending that the airport is so busy these days? I wonder how much that family spends so much money on retirement and has 529 accounts?

I am constantly reading. Working in the market requires you to pay attention to what is happening. You don’t have to act on all of it, but it involves a lot of reading, writing and thinking. In addition to my work, I also read, write and think a lot. Right or wrong, it’s sometimes hard to turn it off.

I have better filters now. People in the financial world offer opinions, analyzes and predictions all the time. If you do this long enough, you realize how wrong people are all the time, even the super intelligent ones (or especially them).

Working in finance has given me a much better BS detector to filter out the noise in other areas of life.

Finance has taught me to keep my emotions at bay. It has been hammered into my head over and over how important it is to keep my feelings out of my finances. That’s not always easy, but I spent years figuring out how to automate my lesser self out of my financial decisions.

Don’t get me wrong, I’m still human. I overreact, get angry, feel greedy, scared, anxious, nervous and all the other emotions.

But sometimes my wife wonders why I don’t show more enthusiasm. I don’t get too high or too low and it makes me think that studying behavioral finance all these years has done this to me.¹

I can deal with uncertainty better. You have to be willing to say it Don’t know on a regular basis when working with the markets and focus on what you can control.

You have no choice.

I find this helps in other areas of my life too. Process over results.

I’m becoming more and more numb to money. Wealth management requires you to work with a lot of wealthy people. You basically have two choices regarding how this makes you think about money:

(1) You are constantly jealous.

(2) You become numb to it.

Working with extraordinary wealth has demystified it for me. I know that acquiring great wealth does not guarantee satisfaction.

Don’t get me wrong, I still feel greed, fear, jealousy and all the other emotions that money brings. I respect wealth and all it can do for you.

But money doesn’t impress me as much as it used to.

Almost every major decision is in a gray state. Financial decisions can be difficult because there is usually no right or wrong answer. Most financial choices involve trade-offs and are indirect, depending on your objectives, risk profile, personal situation, etc.

This applies to the most important decisions in life.

Take this guy for example:

He went viral for posting about how he paid off his 2.265% mortgage.

Some people were angry about this decision. Some people completely understood.

Although I am not a black or white man when it comes to financial decisions, this is crazy to me. I would never do this.

I get people who want to pay off their mortgage because they hate debt, want freedom from mortgage payments or simply want financial flexibility.

With a mortgage interest rate of 5%+, I certainly understand that. But I cannot accept this reasoning with a mortgage interest rate of less than 3%. The inflation rate is 3%. Mortgage debts are fiscally advantageous. Your house is illiquid.

Simply keep the money you would have used to pay off the mortgage in government bonds or in a high-yield savings account. For the love of God DO NOT PAY A LOW MORTGAGE!!!

I wish I had even borrowed more money when the interest rate was still 3%.

Sometimes people take behavioral finance too far. Burying your money in the backyard may help you sleep at night, but that doesn’t mean it’s a wise decision.

And guess what?

This man doesn’t care. His mortgage has been paid off. Who cares what I think?

That’s something else I learned while working in finance: most people don’t change their minds or their behavior.

Oh well.

Michael and I talked about feelings versus finances, paying off your mortgage and more in this week’s Animal Spirits video:

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Further reading:
How much is a 3% mortgage worth?

Here’s what I’ve been reading lately:

Books:

¹Or maybe it’s just my natural ability?