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re: When to pay off the mortgage
Posted on 9/16/22 at 1:16 pm to Niner
Posted on 9/16/22 at 1:16 pm to Niner
quote:
Please explain. I hear this so often and have never heard any sound logic for it. It ends up boiling down to making an excuse to spend more money than you can really afford to spend. ETA: I'll amend that last sentence to remove the absolute. Most of the time it's someone trying to justify to me to spend more than they can afford. On rare occasions does someone really understand what they are doing and is disciplined enough to see it through, understanding the risk involved...
With respect to a mortgage, it’s pretty basic. You have a real, hard asset that has securing a dollar denominated fixed debt. All else being equal, if a dollar goes down in value over time, your hard asset is worth more dollars while the dollar debt is unchanged. The assumption is that you’re using the debt to create leverage to purchase things that can be relatively easily exchanged for dollars.
I’m batting about .010 when it comes to convincing clients that paying off their home early is a relatively poor financial decision, but I don’t lose much sleep over it as long as they’re educated on the pros/cons.
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Posted on 9/16/22 at 2:17 pm to slackster
quote:This is my sticking point. Say your plan works. How do you take advantage of it other than the ability to say "My house is worth more"? Sell? Cash out refi? There are significant drawbacks to either of those.
The assumption is that you’re using the debt to create leverage to purchase things that can be relatively easily exchanged for dollars.
I understand the argument to beat a mortgage rate by investing - that I can get behind if someone is willing and able to take that risk. But using the mortgage as an inflation hedge doesn't make sense to me. The S&P 500, since 1926, has an average return of over 7% (last I checked) adjusted for inflation. So how do you beat inflation? You stay invested.
Those are the drawbacks I see. If I'm thinking through this incorrectly, please tell me so - genuinely. (Other than telling me I have three brain cells.)
quote:Yea - if I tried to explain using a mortgage as an inflation hedge to maybe all buy 1 or 2 of my clients, they would drift off in about 30 seconds. I do have some clients who understand and have prescribed to investing what they would have used to pay extra on the mortgage. Unfortunately, one of them started that strategy about 18 months ago...
I’m batting about .010 when it comes to convincing clients that paying off their home early is a relatively poor financial decision, but I don’t lose much sleep over it as long as they’re educated on the pros/cons.
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Posted on 9/16/22 at 3:01 pm to slackster
quote:
With respect to a mortgage, it’s pretty basic. You have a real, hard asset that has securing a dollar denominated fixed debt.
Wouldn’t the same be true if you paid off early? You still have the hard asset
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