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]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? [/quote]

First, when you are taking a Jumbo loan (anything over ~$750K---don't know the exact numbers, as we haven't had a mortgage on any of our 3 homes in the last decade), so you are not getting the ultra low rates for a mortgage. 2nd, even if mortgage is 5%, that is a guarantee, but the 10-15% in the stock market is NOT a guarantee.  
So right now, it's much better that I do not have $8M tied up in mortgages, because I can get a GUARANTEED 5%+ from just Cds right now.  That leaves the money essentially liquid (I can cash out my CDs at any time without a penalty, that's how it works when you have access to high net work financial manager) so I am free to purchase rental homes/artwork/whatever investments come up with that liquid cash.

So even when we were not "wealthy" we worked towards paying off our mortgage because it is a Guaranteed return on investment.  
Also in many real estate markets, when there are 5+ bids on every good home, you will never get a home if you insist on a mortgage---the seller is always going to take one of the many cash bids because it simplifies the process---you can close in 2.5 weeks versus 4-6 weeks with a mortgage.  [/quote]

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