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]I have not read through the comments, but I’m a realtor mainly serving close in NoVA. I’d say a good half of my clients put 50% or more down. I’d say 15% of my buyers are doing all cash transactions.

To be honest the people who don’t put significant down payments down are very stretched as it is.

I’ve never seen so many cash buyers..

I think it’s pretty obvious. The rates now exceed returns. [/quote]

yeah rates right now are high, but the OP is maybe going to pay off a mortgage at 4% and some others are paying off mortgages with lower rates than that.[/quote]

Where else can you get a risk free after tax return of 4%[/quote]

Um, ibonds that are offering 6.8%.[/quote]

And how much is it after tax? And how much can you invest in ibonds?[/quote]

I can invest 45k in ibonds per year--many households can easily invest 25k.  You don't have to pay taxes until you cash out or use strategically which you can do strategically, and you can use them tax-exempt for higher education if you want.

Ibonds currently yield 6.89% (earlier they were yielding 9+ though many other years they wouldn't have been particularly worth it), and even if gains were taxed at the highest bracket of 37% they come out ahead of 4% tax-free.    And most of us who have been paying attention have mortgages below 2.5% where the numbers are even more clearly favorable.  And in real terms, the greater amount of liquid assets allows us to make more aggressive investments elsewhere with confidence, bringing up total returns.

Also, it's false to say paying down a mortgage is risk free--you could have a severe financial emergency before you fully paid off your mortgage and lose it all.  You could pay off your house, but the area you live in becomes undesirable and the house is hard to sell/rent.  Though either of these is unlikely, you'd much prefer to have more liquid assets and a low-interest mortgage over a paid off house in these cases.

IMO, paying down a mortgage makes more sense for rich people who have enough assets to handle potential financial risks of sinking a significant portion of their money into a house, pay taxes at a higher rate so the value of other investments is less, have enough security so they don't need large liquid cash funds in order to make aggressive stock market investments more confidently, and can absorb the potential losses that might happen to a single property located in one spot, and who don't need to grow capital rather just protect it.  But the problem is that is billed as a safe, conservative practice for middle class or even technically UMC who are living in a HCOL area --and I disagree.

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