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

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

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=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[/quote]

What if your 500k dropped to 250k in a deep recession amid layoffs and you still owed 400k? [/quote]
[b]
If this happens I will deal with the situation.[/b] 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.

[/quote]

Can you care to elaborate how to the non-savvy folks who are paying off their mortgages ? IMHO this is the missing piece why folks pay off the mortgages as they dont how how to handle such scenarios 
[/quote]

DP: Um, with a bank account and ibonds earning more interest than my mortgage.  How are the folks paying off their mortgage going to handle a financial emergency if say you lose your job and need to move to get a new job but the housing market is currently terrible?  Liquid safe cash is safer than a paid-off mortgage.  The more the better.[/quote]

Once the mortgage is paid off, you have more cash, (The PI from the PITI), that you are automatically saving. It adds up quick and also please note that the monthly expenses are lower owing to the paid off house. In the event that you have to move, you can always rent out the house that is paid in full. [/quote]

Once the mortgage is paid off and then you accumulate more cash--[b]that's a longer period of relative insecurity compared to just building the cash and then slowing paying off the mortgage with the accumulated cash (esp. while the cash is accumulating more interest than the mortgage).[/b] Also, while you might be able to rent out the house, it doesn't give you a strong asset base to move from--just a steady income at whatever the market rental rate in your particular area is.  [/quote]

People are saying this like it's normal, but it's just a temporary aberration.  Of course, if you have a 3% mortgage and can get 5% from risk-free investments, it makes sense to do that.  But that's not normal.  Normal is that safe investments pay something like 3% less than your mortgage (i.e. 3% risk-free interest rate and a 6% mortgage), so to get a higher return than paying off your mortgage, you have to take risk.[/quote]

So you’re giving advice for some past situation you’re calling normal that is not the case today? Today, I have a 3% mortgage and can easily get 4+% return from safe cash investments. Paying off my mortgage early would only be for some peace of mind that having debt is bad. It is not the right financial move, I am in a much stronger financial position keeping my safe liquid investments and slowly paying off the mortgage over time while my investments continue to earn a better rate.[/quote]

+1
Make your financial decisions for the actual conditions you are making the decisions in-- not some generic idea that "debt is bad" or "leverage is good."  That's what smart people do.[/quote]

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