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

[Anonymous]

Anonymous wrote:It's about risk management. We paid off our mortgage as a diversification strategy. Our house is less than 25% of our net worth at it's current value - the purchase price was only 12% of our current NW. Our 4.5%, 15-year mortgage was small enough and long enough into its term to no longer make sense to refinance to a lower rate or to push us into itemized deductions after the Trump tax law changes (SALT cap did us in). So... we paid it off. It didn't seem to be worth the gamble of paying 4.5% to a bank to use money that isn't guaranteed to do better in the market. We consider it a guaranteed 4.5% investment in this instance.

+1000

Guaranteed returns

No wealthy person is getting any deduction from the interest---their property taxes are going to use up the SALT cap

Though I suspect wealthy people who inherited vs earned their way to being wealthy may think a bit differently. We always had goal and worked towards paying off mortgage and not taking car loans (and never paid interest on CCs) well before we were wealthy. It's a mindset of "guaranteed return". And then once you have a lot more, we don't feel the need to put 100% in the stock market. Just 30-40% is plenty. We would rather have modest gains (which are great with interest rates currently) and protect the principle, because we can live extremely well (way above what we desire for retirement) with what we currently have---there is no need to "grow it" aggressively

[Anonymous]

Anonymous wrote:

Anonymous wrote: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.

This
My parents home in New Jersey was paid off but it was almost foreclosed due to unpaid property taxes. Taxes in NJ are so ridiculously high that they make up almost 50% of your PITI. Paying off the mortgage doesn't really make you totally free. And taxes increase every year. That so called mortgage freedom is an illusion. You may be free from the bank but Uncle Sam still keeps you on a short leash.

Being free from the bank is a great feeling.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:For us, paying off our house was freeing. We still saved for college and retirement but we had a lower-cost house. I don't see why you wouldn't pay it off. Now, if something happens we know we will be ok in terms of housing and can live on far less if we need to. Now instead of the mortgage, we can invest the money we would have spent on the mortgage or do things we might not have done otherwise.

I wouldn't pay it off because the math speaks in favor of keeping the mortgage due to low interest rates. I understand the emotional aspect of being mortgage free in case something happens. But I more of a risk taker and I value the returns more than the peace of mind. If I didn't have a risk taker mindset, I wouldn't have quit my good paying nine to five job to start my own business.
Most people are more conservative and play it safe. That's why most people aren't entrepreneurs. Just like they value the safety of a nine to five W2 job more, they will also value the safety of a mortgage free house more. People with entrepreneurial mindset think differently.

Wrong. I'm a business owner and value the security of a paid-off house precisely because I take more risk in my day job and my income is variable.

Wouldn't the amount of your mortgage in a higher interest-bearing account make you even more secure? Liquid cash/cash equivalents = more security than lack of low interest debt.

That's how you figure out PP isn't a savvy business owner. lol

[Anonymous]

I have about $1 million in my retirement account, plus another $500,000 in Vanguard mutual funds, plus enough in 529s to pay for my kids' college.

My monthly principal and interest payment on my mortgage is $1,750, and I have a $428,000 balance.

And with those number, I feel a lot more secure and free with $500,000 of liquid funds and a monthly mortgage bill of $1,750 than I would if I paid off my mortgage and had no monthly payment but only $80,000 of liquid investments

[Anonymous]

Anonymous wrote:

Anonymous wrote: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.

You have to stop this false narrative that wealthy people do not take mortgages. Maybe that's true for the small UMC DCUM rich. But the true wealthy people do take mortgages.
I used to work in real estate in New York and I can tell you that 90% of people buying expensive properties had a mortgage. No rich person in their right mind would buy a $10M property and pay cash when they know they can borrow that money at 3% and instead invest the cash in a hedge fund for a much higher return.

Explain to me why Zuckerberg, Buffett, Elon, etc... take mortgages. Do you think they are stupid?
https://www.fool.com/the-ascent/mortgages/articles/why-did-mark-zuckerberg-get-a-mortgage-on-his-home/

People take 10 mortgages on 10 million dollar properties because they do not have the free coin at that time. Once they do they close the mortgage. Warren buffet does not have a mortgage. It's all about timing.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote: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.

You have to stop this false narrative that wealthy people do not take mortgages. Maybe that's true for the small UMC DCUM rich. But the true wealthy people do take mortgages.
I used to work in real estate in New York and I can tell you that 90% of people buying expensive properties had a mortgage. No rich person in their right mind would buy a $10M property and pay cash when they know they can borrow that money at 3% and instead invest the cash in a hedge fund for a much higher return.

Explain to me why Zuckerberg, Buffett, Elon, etc... take mortgages. Do you think they are stupid?
https://www.fool.com/the-ascent/mortgages/articles/why-did-mark-zuckerberg-get-a-mortgage-on-his-home/

People take 10 mortgages on 10 million dollar properties because they do not have the free coin at that time. Once they do they close the mortgage. Warren buffet does not have a mortgage. It's all about timing.

Timing is interesting concept. I have a $300k mortgage on a $830k property. On the next market bull cycle, I may attempt to pay off half early or not. Just depends on the circumstances. Something to consider, bulk of wealth is in the market.

[Anonymous]

Anonymous wrote:I have about $1 million in my retirement account, plus another $500,000 in Vanguard mutual funds, plus enough in 529s to pay for my kids' college.

My monthly principal and interest payment on my mortgage is $1,750, and I have a $428,000 balance.

And with those number, I feel a lot more secure and free with $500,000 of liquid funds and a monthly mortgage bill of $1,750 than I would if I paid off my mortgage and had no monthly payment but only $80,000 of liquid investments

That's how you feel. I feel more secure and free knowing I could lose my ability to earn income tomorrow and I'd still have a roof over my head.

Also, I hate paying interest.

[Anonymous]

Anonymous wrote:

Anonymous wrote:It's about risk management. We paid off our mortgage as a diversification strategy. Our house is less than 25% of our net worth at it's current value - the purchase price was only 12% of our current NW. Our 4.5%, 15-year mortgage was small enough and long enough into its term to no longer make sense to refinance to a lower rate or to push us into itemized deductions after the Trump tax law changes (SALT cap did us in). So... we paid it off. It didn't seem to be worth the gamble of paying 4.5% to a bank to use money that isn't guaranteed to do better in the market. We consider it a guaranteed 4.5% investment in this instance.

+1000

Guaranteed returns

No wealthy person is getting any deduction from the interest---their property taxes are going to use up the SALT cap

Though I suspect wealthy people who inherited vs earned their way to being wealthy may think a bit differently. We always had goal and worked towards paying off mortgage and not taking car loans (and never paid interest on CCs) well before we were wealthy. It's a mindset of "guaranteed return". And then once you have a lot more, we don't feel the need to put 100% in the stock market. Just 30-40% is plenty. We would rather have modest gains (which are great with interest rates currently) and protect the principle, because we can live extremely well (way above what we desire for retirement) with what we currently have---there is no need to "grow it" aggressively

The SALT cap only applies to taxes, it has nothing to do with the mortgage interest deduction.

[Anonymous]

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.

[Anonymous]

OP, pay off your mortgage if that will make you happy. Even though my future pension will cover my mortgage payments I have every intention of retiring without a mortgage. It's a personal choice and you should decide for yourself what's best for you.

[Anonymous]

Anonymous wrote:I have about $1 million in my retirement account, plus another $500,000 in Vanguard mutual funds, plus enough in 529s to pay for my kids' college.

My monthly principal and interest payment on my mortgage is $1,750, and I have a $428,000 balance.

And with those number, I feel a lot more secure and free with $500,000 of liquid funds and a monthly mortgage bill of $1,750 than I would if I paid off my mortgage and had no monthly payment but only $80,000 of liquid investments

What if your 500k dropped to 250k in a deep recession amid layoffs and you still owed 400k?

[Anonymous]

Anonymous wrote:

Anonymous wrote:I have about $1 million in my retirement account, plus another $500,000 in Vanguard mutual funds, plus enough in 529s to pay for my kids' college.

My monthly principal and interest payment on my mortgage is $1,750, and I have a $428,000 balance.

And with those number, I feel a lot more secure and free with $500,000 of liquid funds and a monthly mortgage bill of $1,750 than I would if I paid off my mortgage and had no monthly payment but only $80,000 of liquid investments

What if your 500k dropped to 250k in a deep recession amid layoffs and you still owed 400k?

Happy I still have 250k in the bank, it can carry me a long time with or without a mortgage payment.

[Anonymous]

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).

[Anonymous]

Anonymous wrote:

Anonymous wrote:I have about $1 million in my retirement account, plus another $500,000 in Vanguard mutual funds, plus enough in 529s to pay for my kids' college.

My monthly principal and interest payment on my mortgage is $1,750, and I have a $428,000 balance.

And with those number, I feel a lot more secure and free with $500,000 of liquid funds and a monthly mortgage bill of $1,750 than I would if I paid off my mortgage and had no monthly payment but only $80,000 of liquid investments

What if your 500k dropped to 250k in a deep recession amid layoffs and you still owed 400k?

If this happens I will deal with the situation. As long as I owe the $400k at an interest rate lower than what I can make with my $250k on the market, I’m fine because I know it’s the better position from a pure financial angle. I’m able to put emotions aside.

[Anonymous]

Anonymous wrote: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.

Our mortgage was over 3,000 a month; taxes, insurance and utilities are about 1300. In what world is paying 1300 a month worse than paying 4300 a month?