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]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[/quote]

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.[/quote]

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. [b]Do that math[/b].

[/quote]

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%. [b]you would have $919k after 15 years[/b]. 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%, [b]I would have $1.1M after 15 years[/b]. The house would also be paid off. That's so much better.  Paying off your mortgage early [b]cost you 180k[/b]. 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.

[/quote]

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.
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