If paying off your mortgage is dumb, why do so many rich people do it?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Investments tank. No one can take away a house I own.

I don’t need to optimize the return on every dollar. I need to sleep at night.

- 2 houses and 3 rentals, $1.5M in retirement, zero debt

The government can and will take away your home if you don’t pay the property taxes. If all your money has gone to pay your mortgage down and you have nothing left to live on when you lose your job you will either be forced to sell the property or stop paying some of your bills.

Not caring about optimizing your return is perfectly valid if it helps you sleep well at night.

Learn to read, PP. None of us mortgage-free posters put "all our money" into our homes. We simply chose to aggressively pay off debt while at the same time saving and investing.

Just as another PP noted, being debt free was a financial goal for us. We never fly first-class or stay in 5-star resorts, our newest car is 11 years old, those things were not a priority for us (and never will be).

Also, because we paid off our mortgage more than 15 years ago, the money we would have sent to the bank instead went into the market. Do that math.

More than 15 years ago is a very different interest rate environment--for anyone who has taken on a mortgage in the past 15 years however, they have been able to refinance down to very low rates so advice to pay it off early really doesn't make sense--for optimization of money OR for security. It doesn't matter if you do all those things--whatever money you are putting towards pre-paying your mortgage is money you are not putting into a cash equivalent that currently pays more than most people's mortgage interest rates and/or the market which might be right for someone's strategy.

People haven't mentioned climate risk yet, but more and more individual homes being a large part of someone's assets but located in one place --all the insurance companies are really working on this right now. Insurance rates could go through the roof in the next 10 years if your particular home is now considered endangered--also making it harder to sell. As a PP noted, banks will work with people for short sales or whatever if they have some of their own money tied up in the asset. If you own it, you're on your own.

Rich people don't have to optimize their money, but telling middle class people to pay off their mortgages early now is bad financial advice.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Not paying off a mortgage is financially the right decision. However, the emotional aspect to finances is real and for some folks putting the mortgage in the rear view mirror brings a lot of relief. No judgement here.

In hot real estate markets, the only way to buy a house is to have a cash offer. And if you don't get the mortgage when you buy, you cannot just go get a mortgage on a home later.

+1000

Haven't had a mortgage in over a decade and haven't had a car loan in over 2 decades. It's nice to jump off the American way of financing everything.

You are #goals.

Thanks!

I was wrong—we did get one car loan, because only way to get the $1500 cash back was to “finance” at 0.9%. So I got the loan and paid it off the first month. Seemed silly to not get the $1500 rebate otherwise

Once you jump off the financing trail it’s liberating. And east to not take car loans—keep them 7-10 years, save for next one and sell the used car for $10-20k (we buy luxury cars now).

I had a car loan when it was 0% and there were rebates. I just put the cash for the car in an account earning more than that and set it on autopay. I do the same thing with my 2.49% mortgage I have more than that in 100% safe investments earning more than that and have set it at autopay. I'll walk away with 30k+ more that way.

I know I could earn more with safe investments, but now at point it doesn’t matter. At point where I only need 30-40% in stocks, rest can be in Mm and homes and still earn millions off the safe stuff yearly. Given we are still working, no reason to take more risks.

If you’re at this point it doesn’t matter and you can choose the path of least resistance.

Yes---and it's much easier to sleep when the market is down. When you have enough, you don't need to put 80-90% in the stock market. Keep some in the market and preserver the rest and live off the interest or keep working and reinvesting the interest but it's niceknowing that we could live off the interest when we retire without any issues

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Not paying off a mortgage is financially the right decision. However, the emotional aspect to finances is real and for some folks putting the mortgage in the rear view mirror brings a lot of relief. No judgement here.

In hot real estate markets, the only way to buy a house is to have a cash offer. And if you don't get the mortgage when you buy, you cannot just go get a mortgage on a home later.

+1000

Haven't had a mortgage in over a decade and haven't had a car loan in over 2 decades. It's nice to jump off the American way of financing everything.

You are #goals.

Thanks!

I was wrong—we did get one car loan, because only way to get the $1500 cash back was to “finance” at 0.9%. So I got the loan and paid it off the first month. Seemed silly to not get the $1500 rebate otherwise

Once you jump off the financing trail it’s liberating. And east to not take car loans—keep them 7-10 years, save for next one and sell the used car for $10-20k (we buy luxury cars now).

I had a car loan when it was 0% and there were rebates. I just put the cash for the car in an account earning more than that and set it on autopay. I do the same thing with my 2.49% mortgage I have more than that in 100% safe investments earning more than that and have set it at autopay. I'll walk away with 30k+ more that way.

I know I could earn more with safe investments, but now at point it doesn’t matter. At point where I only need 30-40% in stocks, rest can be in Mm and homes and still earn millions off the safe stuff yearly. Given we are still working, no reason to take more risks.

If you’re at this point it doesn’t matter and you can choose the path of least resistance.

Yes---and it's much easier to sleep when the market is down. When you have enough, you don't need to put 80-90% in the stock market. Keep some in the market and preserver the rest and live off the interest or keep working and reinvesting the interest but it's niceknowing that we could live off the interest when we retire without any issues

Well sure having so much you don't have to worry is a great thing. But pre-paying low interest rate mortgages aren't the best way to get to that point of security for most of us.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Investments tank. No one can take away a house I own.

I don’t need to optimize the return on every dollar. I need to sleep at night.

- 2 houses and 3 rentals, $1.5M in retirement, zero debt

The government can and will take away your home if you don’t pay the property taxes. If all your money has gone to pay your mortgage down and you have nothing left to live on when you lose your job you will either be forced to sell the property or stop paying some of your bills.

Not caring about optimizing your return is perfectly valid if it helps you sleep well at night.

Learn to read, PP. None of us mortgage-free posters put "all our money" into our homes. We simply chose to aggressively pay off debt while at the same time saving and investing.

Just as another PP noted, being debt free was a financial goal for us. We never fly first-class or stay in 5-star resorts, our newest car is 11 years old, those things were not a priority for us (and never will be).

Also, because we paid off our mortgage more than 15 years ago, the money we would have sent to the bank instead went into the market. Do that math.

You are talking about math? Let me show you the math.

Assuming we both have $400k in cash, a house with a $400k mortgage financed for 15 years at 3.5%. Monthly Principal + Interests payment is $2,850
YOU: you decide to use your cash to pay off the mortgage. You can then invest the money ($2,850) you would have used for monthly payments in the market. Assuming a conservative annual return of 7%. you would have $919k after 15 years. That's good.

ME: I don't pay off the mortgage. I invest the $400k in the market instead. Assuming the same conservative annual return of 7%, I would have $1.1M after 15 years. The house would also be paid off. That's so much better. Paying off your mortgage early cost you 180k. That's the math. That's a lot of money lost just to buy your peace of mind.

Do the same math with a $4M mortgage and you are leaving $1.8M on the table.
This is why rich people take mortgages even when they can purchase million dollars houses in cash.

[Anonymous]

Housing costs have shot up in this area since 2001, obviously with peak being 2020/2021. For some people at certain phases of life, that meant stretching to buy modest homes at high prices sometimes with great rates sometimes - 2022 - with not great rates. It's one thing to pay for 30 years if your monthly payment is 2-3k, its another thing if its 5-6k due to house cost. Most people cannot continue to pay that on a retiree income, so their option is aggressively pay it down early while earning, or sell & move to lower cost of living at retirement. Not everyone wants to downsize or leave, so if their choice is invest or pay down the mortgage, some might pay down the mortgage to have housing security in the area they want at retirement.

[Anonymous]

Anonymous wrote:People do many things that are financially unwise but somehow make their lives better/make them emotionally better off. Eg: financing hobbies that have no tangible returns (for kids or for themselves); buying luxury cars versus Hondas; taking a business class flight or flying private rather than economy and staying at 5 stars hotels versus Holiday Inn. Why would prepaying a mortgage or not taking out one in the first place be any different?

Good, sensible comment.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Investments tank. No one can take away a house I own.

I don’t need to optimize the return on every dollar. I need to sleep at night.

- 2 houses and 3 rentals, $1.5M in retirement, zero debt

The government can and will take away your home if you don’t pay the property taxes. If all your money has gone to pay your mortgage down and you have nothing left to live on when you lose your job you will either be forced to sell the property or stop paying some of your bills.

Not caring about optimizing your return is perfectly valid if it helps you sleep well at night.

Learn to read, PP. None of us mortgage-free posters put "all our money" into our homes. We simply chose to aggressively pay off debt while at the same time saving and investing.

Just as another PP noted, being debt free was a financial goal for us. We never fly first-class or stay in 5-star resorts, our newest car is 11 years old, those things were not a priority for us (and never will be).

Also, because we paid off our mortgage more than 15 years ago, the money we would have sent to the bank instead went into the market. Do that math.

You are talking about math? Let me show you the math.

Assuming we both have $400k in cash, a house with a $400k mortgage financed for 15 years at 3.5%. Monthly Principal + Interests payment is $2,850
YOU: you decide to use your cash to pay off the mortgage. You can then invest the money ($2,850) you would have used for monthly payments in the market. Assuming a conservative annual return of 7%. you would have $919k after 15 years. That's good.

ME: I don't pay off the mortgage. I invest the $400k in the market instead. Assuming the same conservative annual return of 7%, I would have $1.1M after 15 years. The house would also be paid off. That's so much better. Paying off your mortgage early cost you 180k. That's the math. That's a lot of money lost just to buy your peace of mind.

Do the same math with a $4M mortgage and you are leaving $1.8M on the table.
This is why rich people take mortgages even when they can purchase million dollars houses in cash.

The thing is -- people who continue paying mortgages DON'T always invest 100% of the money they're not sending to a bank. They spend it.

So 15 years later, they've paid off their house and have nothing to show for it except a house that cost four times what it should have.

[Anonymous]

For me, I admit fear is a part of it. A big one. I’m a fed, so less income in general than many on this board. I remember many older colleagues whose finances got hit massively by 2008 to the point they had to pull back retirement papers. Their TSP dropped like a rock and they had to keep working. Some for years longer. It may be irrational but I’d feel better if my housing was handled before I’m at retirement age if at all possible.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Investments tank. No one can take away a house I own.

I don’t need to optimize the return on every dollar. I need to sleep at night.

- 2 houses and 3 rentals, $1.5M in retirement, zero debt

The government can and will take away your home if you don’t pay the property taxes. If all your money has gone to pay your mortgage down and you have nothing left to live on when you lose your job you will either be forced to sell the property or stop paying some of your bills.

Not caring about optimizing your return is perfectly valid if it helps you sleep well at night.

Learn to read, PP. None of us mortgage-free posters put "all our money" into our homes. We simply chose to aggressively pay off debt while at the same time saving and investing.

Just as another PP noted, being debt free was a financial goal for us. We never fly first-class or stay in 5-star resorts, our newest car is 11 years old, those things were not a priority for us (and never will be).

Also, because we paid off our mortgage more than 15 years ago, the money we would have sent to the bank instead went into the market. Do that math.

You are talking about math? Let me show you the math.

Assuming we both have $400k in cash, a house with a $400k mortgage financed for 15 years at 3.5%. Monthly Principal + Interests payment is $2,850
YOU: you decide to use your cash to pay off the mortgage. You can then invest the money ($2,850) you would have used for monthly payments in the market. Assuming a conservative annual return of 7%. you would have $919k after 15 years. That's good.

ME: I don't pay off the mortgage. I invest the $400k in the market instead. Assuming the same conservative annual return of 7%, I would have $1.1M after 15 years. The house would also be paid off. That's so much better. Paying off your mortgage early cost you 180k. That's the math. That's a lot of money lost just to buy your peace of mind.

Do the same math with a $4M mortgage and you are leaving $1.8M on the table.
This is why rich people take mortgages even when they can purchase million dollars houses in cash.

The thing is -- people who continue paying mortgages DON'T always invest 100% of the money they're not sending to a bank. They spend it.

So 15 years later, they've paid off their house and have nothing to show for it except a house that cost four times what it should have.

Yes, people who lack discipline should purchase their house cash if possible or pay it off very early.
For most of us that are savvy and disciplined investors, it is a very bad move.

[Anonymous]

Anonymous wrote:People do many things that are financially unwise but somehow make their lives better/make them emotionally better off. Eg: financing hobbies that have no tangible returns (for kids or for themselves); buying luxury cars versus Hondas; taking a business class flight or flying private rather than economy and staying at 5 stars hotels versus Holiday Inn. Why would prepaying a mortgage or not taking out one in the first place be any different?

It’s not any different. What’s different is that you have some people here trying to make the case that you save more money and gets a better ROI by doing it.

[Anonymous]

Paid our mortgage off recently. We already have enough $$ in the stock market.

[Anonymous]

Anonymous wrote:Paid our mortgage off recently. We already have enough $$ in the stock market.

Same here. Paid off early and already had a 15 yr loan. now think of clearing the beach place which is also on a 15 yr loan. Also have plenty in the stock market and just don’t care to add anymore.

[Anonymous]

I like knowing if the stock market disapears or the federalgov
decides to let DH and I go, our house will be here for us. Also, we bought in 1998. It was only a 200K house. It is not a huge amount of many in terms of our net worth now.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Investments tank. No one can take away a house I own.

I don’t need to optimize the return on every dollar. I need to sleep at night.

- 2 houses and 3 rentals, $1.5M in retirement, zero debt

The government can and will take away your home if you don’t pay the property taxes. If all your money has gone to pay your mortgage down and you have nothing left to live on when you lose your job you will either be forced to sell the property or stop paying some of your bills.

Not caring about optimizing your return is perfectly valid if it helps you sleep well at night.

Learn to read, PP. None of us mortgage-free posters put "all our money" into our homes. We simply chose to aggressively pay off debt while at the same time saving and investing.

Just as another PP noted, being debt free was a financial goal for us. We never fly first-class or stay in 5-star resorts, our newest car is 11 years old, those things were not a priority for us (and never will be).

Also, because we paid off our mortgage more than 15 years ago, the money we would have sent to the bank instead went into the market. Do that math.

You are talking about math? Let me show you the math.

Assuming we both have $400k in cash, a house with a $400k mortgage financed for 15 years at 3.5%. Monthly Principal + Interests payment is $2,850
YOU: you decide to use your cash to pay off the mortgage. You can then invest the money ($2,850) you would have used for monthly payments in the market. Assuming a conservative annual return of 7%. you would have $919k after 15 years. That's good.

ME: I don't pay off the mortgage. I invest the $400k in the market instead. Assuming the same conservative annual return of 7%, I would have $1.1M after 15 years. The house would also be paid off. That's so much better. Paying off your mortgage early cost you 180k. That's the math. That's a lot of money lost just to buy your peace of mind.

Do the same math with a $4M mortgage and you are leaving $1.8M on the table.
This is why rich people take mortgages even when they can purchase million dollars houses in cash.

The thing is -- people who continue paying mortgages DON'T always invest 100% of the money they're not sending to a bank. They spend it.

So 15 years later, they've paid off their house and have nothing to show for it except a house that cost four times what it should have.

Perhaps - but that's got noting to do with math. It's discipline, and psychology.

[Anonymous]

Anonymous wrote:For me, I admit fear is a part of it. A big one. I’m a fed, so less income in general than many on this board. I remember many older colleagues whose finances got hit massively by 2008 to the point they had to pull back retirement papers. Their TSP dropped like a rock and they had to keep working. Some for years longer. It may be irrational but I’d feel better if my housing was handled before I’m at retirement age if at all possible.

I feel the same way, and I'm not a fed. Our mortgage is at a very low rate, so maybe when we retire in 10 or so years we'll just set money aside in a safe vehicle where the return exceeds the interest rate. That's splitting the baby.