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

Forum Index » Money and Finances

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

Subject:

Emoticons





More smilies

Text Color: Font: Close Marks

[quote=Anonymous][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.

[/quote]

Of course you would pay taxes on the 1.1M. Or may even not pay taxes depending on how smart you or your tax advisor are.
Of course if you are undisciplined, you may want to the choice that you can handle even if it means leaving money on the table.
I would even argue that paying off your mortgage with the $400k as in the example above would require more discipline. Now that you are no longer paying a mortgage,
you have to be disciplined to invest that money every month instead of using it for other purposes.

[/quote]

Options

	Disable HTML in this message
	Disable BB Code in this message
	Disable smilies in this message

Review message

Search Recent Topics Hottest Topics