The Bogleheads' Guide to Investing

there are times when carrying a mortgage on your home is a better option even when you have the funds to pay it off. Let’s assume you are borrowing at an effective, fixed rate of 5 percent. At the same time, you believe that you can earn an average annual return of 8 percent in a balanced portfolio over the long term. Paying off the mortgage is a can’t-miss 5 percent return. However, investing the money at 8 percent earns an average of 3 percent more per year. With the money invested in liquid assets, you have access to it if needed, and the value of the house will likely appreciate whether it’s mortgage-free or not.