People ask why I would not pay off my home faster than 30 years. Well for myself personally our home is worth a lot about $600k, so if I paid off our home it would be disproportionally a large percentage of our net worth.
Home equity and investments in Stocks/Bonds I think needs to be balanced. When considering a portfolio home equity does play a role in stabilzing and diversifying most people's investments. Unfortunately for us, we had a lot of home equity and still do, but little equity investments. This I think is a terrible position to be in, home rich and cash poor. Thus to me the next 5 years is to be spent bulking up our equity positions and retirement funds. That way our overall portfolio will be balanced.
Right now we have $155k in home equity with our DP and equity paydown. This is not counting any appreciation period. I think it hasn't moved since we bought it in 2005, I think below market price. We also did some major improvements which probably have helped the value including repairing a retaining wall for parking and installing a retaining wall for the backyard. Cost of those projects have been minimal, and currently we're installing a gas fireplace which is the first major cost incurred.
However, we unfortunately only have $61k in retirement and $30k in cash. This means we have $91k equity position. That means we have 63% of our net worth tied up in our house. In reality it's more like 80% because the $30k is partially an EF and the rest is cash for DH's school tuition (so it's gone though we're holding onto it). We carry too much cash I feel for people in our 20s, except that we need it to pay for tuition every three months. This is too risky to be investing in stocks or mutual funds of any sort.
This really scares me to have so much tied up in an illiquid asset. I don't think we're in a great financial position. We have too much money tied up in one asset. And as most people know tying up any portofolio weighted too heavily in one asset/stock is a bad idea. It increases the risk/volatility of the portfolio.
Thus I am hoping in the next 5 years to be at 50% home equity and 50% investments. I think this is a realistic goal. But our precarious position is an example of why paying off a home when you have few other assets can actually increase your risk.
Another point is that when we have enough in our taxable account to pay off our mortgage in one fell swoop I'll feel more comfortable. Until then we're going to hang on to cash so we can easily ride out a job loss for say at least 3 years and potentially 5 years. Chances are that if we lost our jobs, we'd have a substantial severance (happened last time 8 months but potentially 12+ months), and we'd likely find a job before time ran out. Another caveat is we've diversified our risk by broadening our career goals and opportunities with our degrees, hence we're more able to find a job we like and will pay well.