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]

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]
In your math you need to account for taxes for the 1.1M number.
The issue of discipline is the most important factor here. The liquid money is very unstable and a want might easily turn into a need. When your money is tied in a house you no option to waste it.

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