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

[Anonymous]

Where did you see that many rich people buy houses cash or pay off their mortgages? Maybe only wannabe rich DCUM people.

Even Zuckerberg bought took a mortgage to buy his house
https://www.fool.com/the-ascent/mortgages/articles/why-did-mark-zuckerberg-get-a-mortgage-on-his-home/

Many ultra rich people have mortgages because it's generally the best option from a financial standpoint.

Even Warren Buffet took a mortgage to buy his house.

https://www.fool.com/the-ascent/mortgages/articles/this-is-the-kind-of-mortgage-warren-buffett-recommends/

Paying off your mortgage is dumb financially. It's only a good thing for middle class people that very emotional and scared of losing it all.

[Anonymous]

I never think rich people are “dumb” - UNLESS they inherited
the $$.

[Anonymous]

You can only write off up to 750k on mortgage deduction so pretty meaningless to a rich person.

Also diversification. The CEO and Founder of Kraken (huge Bitcoin exchange) sold a ton of Bitcoin and bought a mansion in California for cash or Bitcoin.

I know on Wall Street many traders buy Hampton houses cash.

All fear with a highly risky and highly speculative job taking a long term expensive mortgage is too risky.

[Anonymous]

Anonymous wrote:You can only write off up to 750k on mortgage deduction so pretty meaningless to a rich person.

Also diversification. The CEO and Founder of Kraken (huge Bitcoin exchange) sold a ton of Bitcoin and bought a mansion in California for cash or Bitcoin.

I know on Wall Street many traders buy Hampton houses cash.

All fear with a highly risky and highly speculative job taking a long term expensive mortgage is too risky.

Wrong .

Nope. Because these people don’t keep those places for more than five years . They don’t sink millions in.

[Anonymous]

The only "rich" persons I know who have not paid off the mortgage are practicing "stealth wealth". There is zero mortgage (and they pay cash for all else) but they want everyone around them to think they are "just like them" with a fake mortgage. BTW...I'm one of them. Home paid off but never reveal how rich we really are.

[Anonymous]

All I know is that I refinanced my mortgage in November 2020, and, in real terms, my monthly mortgage cost has gone down 15%. Everything else is getting more expensive, my income is going up, my mortgage stays the same.

Why would I pay that off when the real monthly cost of that mortgage goes down with inflation every year? Not that I expect 6-9% inflation to be a permanent feature, but still.

Meanwhile, I can put the money in a liquid investment vehicle that at least keeps up with the inflation rate, and probably does better.

[Anonymous]

We are 58/59, own two properties and haven't had a mortgage in over two decades.

I hated paying interest, when I could be investing that money instead of giving it to a bank. And not having that big bill every month gave us a lot of flexibility in terms of where we worked and how much we needed to earn.

Basically, we semi-retired the day we stopped having a mortgage payment, because we could.

[Anonymous]

Anonymous wrote:You always see it on the real estate forum: “Oh, that’s a $4 million house so interest rates don’t matter. At that price point, people are just paying cash.” Don’t those rich, smart people know that they can just take out a mortgage for 6% and invest the difference in the stock market at 10%? And then when interest rates drop, they can refinance to a lower mortgage rate.

I finally have enough saved up to pay off my mortgage, and it’s the greatest feeling in the world. I am actually violating my own rule a little bit – right now, I have the money in I Bonds and short-term Treasuries, but only because they’re risk free and paying a higher rate than my 4% mortgage. But the minute the interest rate drops below my mortgage rate, I’m cashing out and paying off my mortgage. It’s such a huge stress relief to have arrived at this point.

My only meaningful expenses going forward are going to be food, utilities, and property taxes, along with the occasional home repair. It feels incredible because I now require very little income to survive. And I assume super rich people also feel that way since many of them don’t use mortgages. To me, part of being rich (even though I’m not “rich” yet) is not having to make every decision purely based on maximizing money.

For example, you could say that some rich people are dumb because they take significant amounts of leisure time – don’t they know they could be working and earning more money? But at a certain point, it’s not all about the money - it’s about your lifestyle and how you feel getting from Point A to Point B. Thoughts?

The rich have other ways to get liquidity. I don't, so I don't park my liquidity in home equity.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:We have three houses - our primary residence, our second home, and an investment property. We have mortgages on two of them, our primary residence and the investment property. The combined value of the homes is about $3.3 million. The combined mortgage debt is about $1.1 million. The interest rates are 1.7 and 1.85 percent. Monthly interest payments are less than $2000 a month for both mortgages combined.

How on earth would it make any sense to pay these mortgages off? It would make zero sense. Also, if I were to do that, we’d have $3.3 million in real estate investments and that would tilt a diversified portfolio into imbalance.

Finally, it’s not true that you can’t get a mortgage except at higher rates if you first buy in cash. We got the mortgage on the investment property (a duplex in a highly desirable DMV neighborhood) after buying it in cash. Not only that, we did it while retired and without a consistent monthly income. We worked with Schwab, where we have all of our retirement and brokerage accounts. They are tied in with Rocket Mortgage. They arranged for “asset depletion” loans based on the balance of our retirement/brokerage accounts AND we qualified for discounted interest rates because of the size of our accounts.

Lots of misinformation on this thread about what one can and cannot do.

It would still need to be a Jumbo loan unless you are below that amount owed on the home (or multiple loans below the jumbo amount so a nightmare of paperwork and multiple mortgages on each house).
We own 3 homes and all of them were paid for with cash---paid over $8M total, likely worth $10M+ currently. We prefer the guarantee of knowing taxes and upkeep is all we owe for each home. Sure I could put $5-6M of that into the stock market or into CDs at 4-5% but I already have plenty in both of those. No need to risk more in the stock market, can live quite luxuriously off of the 4-5% return on what we have if needed.

Neither is a jumbo loan and paperwork was a breeze. There was really nothing to it. As I said, it was an “asset depletion” loan obtained through Schwab / Quicken Loans. I didn’t need to document my assets because Schwab already knew them because all of my accounts are with them. In a nutshell, they basically said “we know what you have and we will arrange the loans for you.”

You do you, obviously, but you ain’t being smart.

My 3 homes are still well less than 20% of our net worth. So we are certainly smart about our finances. We are just at a point where we do not need to take the risk with 90% of our money in the market. So no mortgage is a guaranteed rate of return and we don't need access to any of the money anytime soon.

[Anonymous]

You folks who think you have paid off your mortgage and are now free....do you not have taxes, and insurance, and utilities, and upkeep?

Those four items cost me more than the mortgage on my house - and my mortgage payment is fixed, while all those other expenses keep growing. You are not free of anything after you pay off your mortgage.

[Anonymous]

Anonymous wrote:I never think rich people are “dumb” - UNLESS they inherited
the $$.

They may not be optimizing their money though--when you have more than you need you might not care that much about making the best decision for maximizing security and growth.

[Anonymous]

Anonymous wrote:You can only write off up to 750k on mortgage deduction so pretty meaningless to a rich person.

Also diversification. The CEO and Founder of Kraken (huge Bitcoin exchange) sold a ton of Bitcoin and bought a mansion in California for cash or Bitcoin.

I know on Wall Street many traders buy Hampton houses cash.

All fear with a highly risky and highly speculative job taking a long term expensive mortgage is too risky.

Totally wrong. They all take mortgages because they understand math and finance.
These CEOs and Wall Street traders know that making financial decisions based on emotions is a recipe for disaster.

[Anonymous]

Anonymous wrote:Mainly because they’re more liquid and have more cash flow than the typical middle class SOB who goes into austerity mode in the near term to tie up their cash in an illiquid asset.

This. When we bought our house, it was our biggest asset, about equal to the value of our investments. When we paid it off, the value of the house was about 20% of our net worth. It just doesn't matter than we have that money in illiquid form now.

[Anonymous]

Can we stop this false narrative now. Most wealthy people do not have mortgages. Full stop. Some do and the reasons why are on this thread. But most do not. Most use money from outsized market gains like before last year’s meltdown and pay off any debt. Why? The really wealthy 25 million plus do not want to deal with debt and are uninterested in the arbitrage. The wealthy 10- 25 million know how quickly the world turns on you and that debt should disappear in good times. Below 10 you are doing great but you are not wealthy.

[Anonymous]

Anonymous wrote:

Anonymous wrote:You can only write off up to 750k on mortgage deduction so pretty meaningless to a rich person.

Also diversification. The CEO and Founder of Kraken (huge Bitcoin exchange) sold a ton of Bitcoin and bought a mansion in California for cash or Bitcoin.

I know on Wall Street many traders buy Hampton houses cash.

All fear with a highly risky and highly speculative job taking a long term expensive mortgage is too risky.

Totally wrong. They all take mortgages because they understand math and finance.
These CEOs and Wall Street traders know that making financial decisions based on emotions is a recipe for disaster.

CEOs and Wall Street traders do not keep any debt when they reach a certain level. Why? They know their job could be gone in 5 minutes. These days one wrong comment and you are cancelled. Sure they have debt on the way up. 10 million house and 10 million beach house add a lot to the debt. But when they can they eliminate. They do not care about the arbitrage.