Anonymous
Post 02/16/2023 17:55     Subject: Re:If paying off your mortgage is dumb, why do so many rich people do it?
Anonymous wrote:
Anonymous wrote:We have three houses - our primary residence, our second home, and an investment property. We have mortgages on two of them, our primary residence and the investment property. The combined value of the homes is about $3.3 million. The combined mortgage debt is about $1.1 million. The interest rates are 1.7 and 1.85 percent. Monthly interest payments are less than $2000 a month for both mortgages combined.

How on earth would it make any sense to pay these mortgages off? It would make zero sense. Also, if I were to do that, we’d have $3.3 million in real estate investments and that would tilt a diversified portfolio into imbalance.

Finally, it’s not true that you can’t get a mortgage except at higher rates if you first buy in cash. We got the mortgage on the investment property (a duplex in a highly desirable DMV neighborhood) after buying it in cash. Not only that, we did it while retired and without a consistent monthly income. We worked with Schwab, where we have all of our retirement and brokerage accounts. They are tied in with Rocket Mortgage. They arranged for “asset depletion” loans based on the balance of our retirement/brokerage accounts AND we qualified for discounted interest rates because of the size of our accounts.

Lots of misinformation on this thread about what one can and cannot do.

It would still need to be a Jumbo loan unless you are below that amount owed on the home (or multiple loans below the jumbo amount so a nightmare of paperwork and multiple mortgages on each house).
We own 3 homes and all of them were paid for with cash---paid over $8M total, likely worth $10M+ currently. We prefer the guarantee of knowing taxes and upkeep is all we owe for each home. Sure I could put $5-6M of that into the stock market or into CDs at 4-5% but I already have plenty in both of those. No need to risk more in the stock market, can live quite luxuriously off of the 4-5% return on what we have if needed.


Neither is a jumbo loan and paperwork was a breeze. There was really nothing to it. As I said, it was an “asset depletion” loan obtained through Schwab / Quicken Loans. I didn’t need to document my assets because Schwab already knew them because all of my accounts are with them. In a nutshell, they basically said “we know what you have and we will arrange the loans for you.”

You do you, obviously, but you ain’t being smart.
Anonymous
Post 02/16/2023 16:00     Subject: Re:If paying off your mortgage is dumb, why do so many rich people do it?
Anonymous wrote:We have three houses - our primary residence, our second home, and an investment property. We have mortgages on two of them, our primary residence and the investment property. The combined value of the homes is about $3.3 million. The combined mortgage debt is about $1.1 million. The interest rates are 1.7 and 1.85 percent. Monthly interest payments are less than $2000 a month for both mortgages combined.

How on earth would it make any sense to pay these mortgages off? It would make zero sense. Also, if I were to do that, we’d have $3.3 million in real estate investments and that would tilt a diversified portfolio into imbalance.

Finally, it’s not true that you can’t get a mortgage except at higher rates if you first buy in cash. We got the mortgage on the investment property (a duplex in a highly desirable DMV neighborhood) after buying it in cash. Not only that, we did it while retired and without a consistent monthly income. We worked with Schwab, where we have all of our retirement and brokerage accounts. They are tied in with Rocket Mortgage. They arranged for “asset depletion” loans based on the balance of our retirement/brokerage accounts AND we qualified for discounted interest rates because of the size of our accounts.

Lots of misinformation on this thread about what one can and cannot do.

It would still need to be a Jumbo loan unless you are below that amount owed on the home (or multiple loans below the jumbo amount so a nightmare of paperwork and multiple mortgages on each house).
We own 3 homes and all of them were paid for with cash---paid over $8M total, likely worth $10M+ currently. We prefer the guarantee of knowing taxes and upkeep is all we owe for each home. Sure I could put $5-6M of that into the stock market or into CDs at 4-5% but I already have plenty in both of those. No need to risk more in the stock market, can live quite luxuriously off of the 4-5% return on what we have if needed.
Anonymous
Post 02/16/2023 15:25     Subject: Re:If paying off your mortgage is dumb, why do so many rich people do it?
We have three houses - our primary residence, our second home, and an investment property. We have mortgages on two of them, our primary residence and the investment property. The combined value of the homes is about $3.3 million. The combined mortgage debt is about $1.1 million. The interest rates are 1.7 and 1.85 percent. Monthly interest payments are less than $2000 a month for both mortgages combined.

How on earth would it make any sense to pay these mortgages off? It would make zero sense. Also, if I were to do that, we’d have $3.3 million in real estate investments and that would tilt a diversified portfolio into imbalance.

Finally, it’s not true that you can’t get a mortgage except at higher rates if you first buy in cash. We got the mortgage on the investment property (a duplex in a highly desirable DMV neighborhood) after buying it in cash. Not only that, we did it while retired and without a consistent monthly income. We worked with Schwab, where we have all of our retirement and brokerage accounts. They are tied in with Rocket Mortgage. They arranged for “asset depletion” loans based on the balance of our retirement/brokerage accounts AND we qualified for discounted interest rates because of the size of our accounts.

Lots of misinformation on this thread about what one can and cannot do.
Anonymous
Post 02/16/2023 14:36     Subject: If paying off your mortgage is dumb, why do so many rich people do it?
Anonymous wrote:
Anonymous wrote:For us middle class peons, I think part of it is well if you could pay off your mortgage, at least you will have a roof over your head if something happens (spouse dies, medical emergency).


Totally random - you might be middle class, but at least you can spell the word peon. The number of rich people I've seen spell it who must literally think it derives from peeing on those below them is ridiculous.

Well both my husband and I have graduate degrees. Not everyone who is well educated is making half a mil like most DCUMers
Anonymous
Post 02/16/2023 14:00     Subject: Re:If paying off your mortgage is dumb, why do so many rich people do it?
Anonymous wrote:
Anonymous wrote:The choice isn't between "invest in stocks" or "pay off mortgage." It's a matter of your total portfolio. We have several million dollars of exposure to stocks - mostly through our 401ks, and some in regular accounts. We accelerated paying off our mortgage. That just means a bit less in stocks, and a bit more in paying off the mortgage, which is effectively a guaranteed fixed return. It's not irrational, it's just a question of your risk/reward preference.


Yes, I wouldn't recommend paying off a mortgage if you are not well invested for retirement and a bit more.
But for the non-wealthy, aiming to pay off the mortgage is often a good mindset---becoming debt free is a guarantee, unlike the stock market.


But you agree that if cds and ibonds are paying more than your mortgage it's even more of a flexible guarantee than either, right?
Anonymous
Post 02/16/2023 13:33     Subject: Re:If paying off your mortgage is dumb, why do so many rich people do it?
Anonymous wrote:
Anonymous wrote:The choice isn't between "invest in stocks" or "pay off mortgage." It's a matter of your total portfolio. We have several million dollars of exposure to stocks - mostly through our 401ks, and some in regular accounts. We accelerated paying off our mortgage. That just means a bit less in stocks, and a bit more in paying off the mortgage, which is effectively a guaranteed fixed return. It's not irrational, it's just a question of your risk/reward preference.


Yes, I wouldn't recommend paying off a mortgage if you are not well invested for retirement and a bit more.
But for the non-wealthy, aiming to pay off the mortgage is often a good mindset---becoming debt free is a guarantee, unlike the stock market.


i think you got it backwards.....most people with plenty of $$ pay off mortgages. Others just scrimp by.
Anonymous
Post 02/16/2023 13:00     Subject: Re:If paying off your mortgage is dumb, why do so many rich people do it?
Anonymous wrote:The choice isn't between "invest in stocks" or "pay off mortgage." It's a matter of your total portfolio. We have several million dollars of exposure to stocks - mostly through our 401ks, and some in regular accounts. We accelerated paying off our mortgage. That just means a bit less in stocks, and a bit more in paying off the mortgage, which is effectively a guaranteed fixed return. It's not irrational, it's just a question of your risk/reward preference.


Yes, I wouldn't recommend paying off a mortgage if you are not well invested for retirement and a bit more.
But for the non-wealthy, aiming to pay off the mortgage is often a good mindset---becoming debt free is a guarantee, unlike the stock market.
Anonymous
Post 02/16/2023 12:57     Subject: Re:If paying off your mortgage is dumb, why do so many rich people do it?
Anonymous wrote:
Anonymous wrote:
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.

Yes, but them most people get a mortgage immediately after closing.


Not true.


Yes---I agree, not true. You cannot get a normal mortgage after closing, so the rates are typically higher than you would have gotten.

As long as you have 6-9 months living expenses in your emergency fund (ie. liquid assets), it can be beneficial to pay off your mortgage. It's a guarnateed return. And if you are wealthy, it just doesn't make sense to deal with a mortgage at jumbo rates when you still have millions in cash/easily liquidated assets.
Anonymous
Post 02/16/2023 12:55     Subject: If paying off your mortgage is dumb, why do so many rich people do it?
Anonymous wrote:I'm not sure your premise is correct. I think plenty of rich people don't pay off their houses.

I am well off now due to an inheritance and am considering paying cash for a home. However, my financial advisors say that's a bad idea. That it is better to take out a line of credit or mortgage and invest the cash.

Given that I pay them a percentage of my assets in my IMA, I am not sure I should be trusting that advice. But I do think a lot of rich people take advantage of mortgages and lines of credit.


Its quantitative vs. qualitative.

The math proves it does not make sense if your debt is cheap; however, often times the emotional aspect of no mortgage can outweigh the math.
Anonymous
Post 02/16/2023 12:21     Subject: If paying off your mortgage is dumb, why do so many rich people do it?
Anonymous wrote:For us middle class peons, I think part of it is well if you could pay off your mortgage, at least you will have a roof over your head if something happens (spouse dies, medical emergency).


Totally random - you might be middle class, but at least you can spell the word peon. The number of rich people I've seen spell it who must literally think it derives from peeing on those below them is ridiculous.
Anonymous
Post 02/16/2023 11:57     Subject: Re:If paying off your mortgage is dumb, why do so many rich people do it?
Anonymous wrote:OP, I'm with you. And I think peopel underestimate the intangible benefits of not owing money on your home. I feel differently about investment properties, where I think it makes sense to just look critically at how to maximize your profits. But I find the security and peace of mind of owning my home free and clear to be worth something. An investment property you can always sell if you need to liquidate or for some reason you couldn't cover the debt. But selling your house is different -- you need somewhere to live. Knowing that if I was suddenly without income, or if I needed to save a large sum very quickly, I could simplify other costs and live in my current home for very little money, is huge. Also, I genuinely love my home so I would hate to be in a situation where I feel like I have to sell it due to the mortgage. Even with a very high income, the idea of paying 10-20k a month on a mortgage just sounds dicey to me -- people who finance homes like that can get into cash flow problems very quickly, especially if they've structured their earnings to reduce ordinary income as much as possible. It might be "smart" financially, but it sounds stressful and having less stress is worth a lot of money to me.


You ALWAYS owe money in a house — just try not paying your taxes.

You are just renting land from the state…
Anonymous
Post 02/16/2023 11:56     Subject: If paying off your mortgage is dumb, why do so many rich people do it?
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:Most people would call us. We have a paid off $3m home. Rich people are not stupid. How do you think we got rich? Of course we understand economics, leverage, opportunity costs, capital investment, etc. If you have the $$ it's liberating to pay off of the primary family home.


THis^^^

Then you are free to invest that money wherever you want to. Right now that money can earn a guaranteed 5%+ in CDs---$150K/year in cash guaranteed


Or you can invest all the money in the 5% cds and keep your 2.49% mortgage.


Which means you cut your return in half and continue giving money to a bank.


Huh? You really don't understand math. If you have the same amount of money---say 500k. If you put 500k into a 5% cd you get and end up with more than if you use a portion of it--say 300k to pay off the 2.49% mortgage. Then you only have 200k to put in the 5% cd.
Anonymous
Post 02/16/2023 11:43     Subject: If paying off your mortgage is dumb, why do so many rich people do it?
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:Most people would call us. We have a paid off $3m home. Rich people are not stupid. How do you think we got rich? Of course we understand economics, leverage, opportunity costs, capital investment, etc. If you have the $$ it's liberating to pay off of the primary family home.


THis^^^

Then you are free to invest that money wherever you want to. Right now that money can earn a guaranteed 5%+ in CDs---$150K/year in cash guaranteed


Or you can invest all the money in the 5% cds and keep your 2.49% mortgage.


Which means you cut your return in half and continue giving money to a bank.
Anonymous
Post 02/16/2023 11:36     Subject: If paying off your mortgage is dumb, why do so many rich people do it?
Anonymous wrote:
Anonymous wrote:Most people would call us. We have a paid off $3m home. Rich people are not stupid. How do you think we got rich? Of course we understand economics, leverage, opportunity costs, capital investment, etc. If you have the $$ it's liberating to pay off of the primary family home.


THis^^^

Then you are free to invest that money wherever you want to. Right now that money can earn a guaranteed 5%+ in CDs---$150K/year in cash guaranteed


Or you can invest all the money in the 5% cds and keep your 2.49% mortgage.
Anonymous
Post 02/16/2023 11:36     Subject: If paying off your mortgage is dumb, why do so many rich people do it?
Here is something that hasn't been brought up. The last time we went house shopping, we didn't qualify for a mortgage, although our NW was in the 10s of millions of dollars. Why? Because as business owners, our AGA was too low for the house we were trying to buy. So, we would have to go through an unconventional route to get financing, and it wasn't worth the hassle. Paid in cash.

Before we were wealthy, we still prioritized paying off the mortgage. Both of us are debt averse, having come from circumstances where we have seen wealth disappear in short order. As a consequence, we are completely debt free. We have no loans of any kind, and the CC that we use are paid off in full every time.