FTA:
Although American fixed rates often last for decades, most in Britain and swathes of continental Europe expire after five years or less.
So, it’s an adjustable rate mortgage, and those rates are high right now, and are expected to remain high. Meanwhile, savings rates are very low, and expected to remain low.
Nothing has really changed - if your interest rate to borrow is higher than your interest rate to save/invest, then you are better off paying it off early. This has always been true, and has usually been the case for us commoners.
The big counterargument they make is that investments could/did yield high returns. That was always risky at best, and requires cherry-picking data to support it. But now they aren’t even expecting that.
If inflation continues to rise, then the value of your dollar will go down over time.
$1000 today is going to be worth a lot more than $1000 in 30 years.
Unless your interest rates are much higher than inflation, just save the money.
The opportunity cost over the longer term, and considering the alternative of investing in shares, has been greater still. Twenty years ago mortgage rates in Britain were not much higher than they are now, at around 5%. Even with a once-in-a-century financial crisis looming, buying stocks rather than making early mortgage repayments would have paid off handsomely. Since the start of 2005, measured in pounds sterling, the msci World share index has generated annualised nominal returns of above 10%. Had your mortgage rate stayed the same for the next two decades (though in reality it would have fallen), paying off £1,000 ($1,250) in 2005 would have saved a respectable £1,800 in interest. Investing it in a global share-tracker fund would have made a profit of £6,500, however.
