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re: When to pay off the mortgage
Posted on 9/16/22 at 2:17 pm to slackster
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 3:00 pm to Niner
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.
It’s not flawless, but like you said, it’s usually coupled with investing the extra money. On it’s own it doesn’t do you any good, but the fact it is usually the cheapest and longest term debt you can find, so it works.
In essence, debt is negative dollars, so if dollars are going down in value, you want as little of them as possible and as many things you can convert to dollars as possible. Debt can provide additional leverage to invest in hard and/or paper assets. (I know you know this)
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