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

[Anonymous]

I have not read through the comments, but I’m a realtor mainly serving close in NoVA. I’d say a good half of my clients put 50% or more down. I’d say 15% of my buyers are doing all cash transactions.

To be honest the people who don’t put significant down payments down are very stretched as it is.

I’ve never seen so many cash buyers..

I think it’s pretty obvious. The rates now exceed returns.

[Anonymous]

Anonymous wrote:I have not read through the comments, but I’m a realtor mainly serving close in NoVA. I’d say a good half of my clients put 50% or more down. I’d say 15% of my buyers are doing all cash transactions.

To be honest the people who don’t put significant down payments down are very stretched as it is.

I’ve never seen so many cash buyers..

I think it’s pretty obvious. The rates now exceed returns.

yeah rates right now are high, but the OP is maybe going to pay off a mortgage at 4% and some others are paying off mortgages with lower rates than that.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I have not read through the comments, but I’m a realtor mainly serving close in NoVA. I’d say a good half of my clients put 50% or more down. I’d say 15% of my buyers are doing all cash transactions.

To be honest the people who don’t put significant down payments down are very stretched as it is.

I’ve never seen so many cash buyers..

I think it’s pretty obvious. The rates now exceed returns.

yeah rates right now are high, but the OP is maybe going to pay off a mortgage at 4% and some others are paying off mortgages with lower rates than that.

I think it becomes a peace of mind thing or people having real concerns about aging out do the job market. I deal with a pretty wealthy client base, but I also deal with the “working wealthy” . The working wealthy can get themselves into some tight spaces needing a high income to maintain their lives. I can see why carrying no debt at all can bring peace of mind.

[Anonymous]

We are “rich” I guess? We paid off a low interest rate mortgage at 3%. We actually cashed in some
Stock to do so when the market was at peak. In hindsight I’m glad we did so since our portfolio has taken a nose dive. We have one kid at NYU and are cash pay for that. He is pre med and we are using his 529 to help pay for medical school.

[Anonymous]

Anonymous wrote:Diversification. Gotta park your $ somewhere, some people prefer to not have it all in the market.

This. Rich people with multiple real properties pay cash as a part of a diversified portfolio (and to have nice vacation homes).

[Anonymous]

I bought my $1,325,000 home in 2017 and put down $750,000. In 2021 rates were low and instead of refinancing I prepaid another $150,000.

I sleep better knowing I have a smaller mortgage balance. In retrospect if I knew 2022 was going to be so crappy for stocks I should have just paid it off.

If I land a new job with a pay raise may throw another $100,000 at mortgage.

Don’t want to end up like older sister she refinanced 100 percent into a new 30 year loan at age of 56 and was forced to sell as husband lost job in 2019 at 63 and then they were force selling stocks on 2020.

She had a $950,000 balance mortgage at 62 with a household income of $40,000!

[Anonymous]

Anonymous wrote:I bought my $1,325,000 home in 2017 and put down $750,000. In 2021 rates were low and instead of refinancing I prepaid another $150,000.

I sleep better knowing I have a smaller mortgage balance. In retrospect if I knew 2022 was going to be so crappy for stocks I should have just paid it off.

If I land a new job with a pay raise may throw another $100,000 at mortgage.

Don’t want to end up like older sister she refinanced 100 percent into a new 30 year loan at age of 56 and was forced to sell as husband lost job in 2019 at 63 and then they were force selling stocks on 2020.

She had a $950,000 balance mortgage at 62 with a household income of $40,000!

So your sister made disastrous financial decisions and you just made sub-optimal ones.

[Anonymous]

I am super worried about getting laid off in my 50s, this is why I keep enough money to pay off my mortgage in liquid investments. I would be more worried with my mortgage paid off and not having as much in liquid investments. After all, I'd still need to pay property taxes even without a mortgage.

[Anonymous]

Anonymous wrote:I am super worried about getting laid off in my 50s, this is why I keep enough money to pay off my mortgage in liquid investments. I would be more worried with my mortgage paid off and not having as much in liquid investments. After all, I'd still need to pay property taxes even without a mortgage.

+1 I don't pay off my mortgage to increase my sense of security. I have locked in low mortgage rates and would hate to have to tap a HELOC at higher rates if I needed cash for bills--instead I keep enough in cash, ibonds, cds, t-bills, and short term bonds to more than cover the remaining amount on my mortgage. It helps me sleep at night and helps me feel more free to invest the rest of my assets in the stock market.

[Anonymous]

I’m trying to save to recast so my monthly is more manageable. I won’t pay it off but get it low enough I can more easily manage the monthly if I’m retired.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I have not read through the comments, but I’m a realtor mainly serving close in NoVA. I’d say a good half of my clients put 50% or more down. I’d say 15% of my buyers are doing all cash transactions.

To be honest the people who don’t put significant down payments down are very stretched as it is.

I’ve never seen so many cash buyers..

I think it’s pretty obvious. The rates now exceed returns.

yeah rates right now are high, but the OP is maybe going to pay off a mortgage at 4% and some others are paying off mortgages with lower rates than that.

Where else can you get a risk free after tax return of 4%

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I have not read through the comments, but I’m a realtor mainly serving close in NoVA. I’d say a good half of my clients put 50% or more down. I’d say 15% of my buyers are doing all cash transactions.

To be honest the people who don’t put significant down payments down are very stretched as it is.

I’ve never seen so many cash buyers..

I think it’s pretty obvious. The rates now exceed returns.

yeah rates right now are high, but the OP is maybe going to pay off a mortgage at 4% and some others are paying off mortgages with lower rates than that.

Where else can you get a risk free after tax return of 4%

Um, ibonds that are offering 6.8%.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I have not read through the comments, but I’m a realtor mainly serving close in NoVA. I’d say a good half of my clients put 50% or more down. I’d say 15% of my buyers are doing all cash transactions.

To be honest the people who don’t put significant down payments down are very stretched as it is.

I’ve never seen so many cash buyers..

I think it’s pretty obvious. The rates now exceed returns.

yeah rates right now are high, but the OP is maybe going to pay off a mortgage at 4% and some others are paying off mortgages with lower rates than that.

Where else can you get a risk free after tax return of 4%

Um, ibonds that are offering 6.8%.

And how much is it after tax? And how much can you invest in ibonds?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I have not read through the comments, but I’m a realtor mainly serving close in NoVA. I’d say a good half of my clients put 50% or more down. I’d say 15% of my buyers are doing all cash transactions.

To be honest the people who don’t put significant down payments down are very stretched as it is.

I’ve never seen so many cash buyers..

I think it’s pretty obvious. The rates now exceed returns.

yeah rates right now are high, but the OP is maybe going to pay off a mortgage at 4% and some others are paying off mortgages with lower rates than that.

Where else can you get a risk free after tax return of 4%

Um, ibonds that are offering 6.8%.

And how much is it after tax? And how much can you invest in ibonds?

I can invest 45k in ibonds per year--many households can easily invest 25k. You don't have to pay taxes until you cash out or use strategically which you can do strategically, and you can use them tax-exempt for higher education if you want.

Ibonds currently yield 6.89% (earlier they were yielding 9+ though many other years they wouldn't have been particularly worth it), and even if gains were taxed at the highest bracket of 37% they come out ahead of 4% tax-free. And most of us who have been paying attention have mortgages below 2.5% where the numbers are even more clearly favorable. And in real terms, the greater amount of liquid assets allows us to make more aggressive investments elsewhere with confidence, bringing up total returns.

Also, it's false to say paying down a mortgage is risk free--you could have a severe financial emergency before you fully paid off your mortgage and lose it all. You could pay off your house, but the area you live in becomes undesirable and the house is hard to sell/rent. Though either of these is unlikely, you'd much prefer to have more liquid assets and a low-interest mortgage over a paid off house in these cases.

IMO, paying down a mortgage makes more sense for rich people who have enough assets to handle potential financial risks of sinking a significant portion of their money into a house, pay taxes at a higher rate so the value of other investments is less, have enough security so they don't need large liquid cash funds in order to make aggressive stock market investments more confidently, and can absorb the potential losses that might happen to a single property located in one spot, and who don't need to grow capital rather just protect it. But the problem is that is billed as a safe, conservative practice for middle class or even technically UMC who are living in a HCOL area --and I disagree.

[Anonymous]

People who feel a need to payoff a 3% mortgage for the “peace of mind” did not achieve their wealth by making smart financial decisions. They either inherited it or got lucky. If they earned it the hard way, they would know better.