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It Is Not About the Money, Silly, It Is All About the Time

jacquesmattheij.com

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Re: It Is Not About the Money, Silly, It Is All About the Time

#11

Post by carsongross »

throwaway283719 wrote: post #3

There can be totally valid reasons for not getting rid of your mortgage even if you have the opportunity - if you have something better to do with the money. If you are paying 3.5% on your mortgage but you can invest somewhere with a return greater than 3.5% after tax, why would you pay down your mortgage?

Here are some reasons:

1) It is difficult to take a house away from you if you are worried about "bail-in" type scenarios.

2) Paying off your mortgage is a guaranteed investment (there is no default risk) and so it should be compared with long term investing in very high quality government bonds when looking at rates of return, rather than what you can achieve more broadly.

3) It eliminates any future call risk, where your broader investments tank and it becomes difficult to meet your fixed mortgage obligation without liquidating investments at fire-sale prices.

4) It is perfectly hedged against future housing costs, which you will probably always need.

5) This is controversial, but if you believe, as I do, that a fractionally reserved monetary system is immoral, paying off your mortgage (and all the rest of your debt) is as hard a blow as you can land against it.

Re: It Is Not About the Money, Silly, It Is All About the Time

#12

Post by zzleeper »

jacquesm wrote: post #4
davidw wrote: post #2

> someone explained to me in a very serious tone of voice that getting rid of your mortgage is stupid because it is a deductible, better to wait with paying it off when you sell the house in 25 years All else being equal, if you can deduct that from your taxes and spend the money on something else - like, say, index funds - you're going to be better off financially, no?

Index funds do not have a guaranteed rate of return but mortgages do have a guaranteed rate of expense.

Was just thinking the same thing. Keeping the mortgage and investing on index funds is the same thing as "leveraging up" your investments. AKA, it's the same as saying "let's borrow 1k from the bank at 3.5% and put it into the SP500".

Re: It Is Not About the Money, Silly, It Is All About the Time

#15

Post by christiangenco »

gregorycarter wrote: post #9

Have you read Early Retirement Extreme? http://earlyretirementextreme.com/ Very similar philosophy.

Also Mr. Money Mustache: http://www.mrmoneymustache.com/2013/02/22/getting-rich-from-...

He's a software engineer from Canada that never made more than $140 between him and his wife, and they happily retired when he was 30.

Re: It Is Not About the Money, Silly, It Is All About the Time

#16

Post by davidw »

zzleeper wrote: post #12
jacquesm wrote: post #4

Earlier quoted context omitted.

Index funds do not have a guaranteed rate of return but mortgages do have a guaranteed rate of expense.

Was just thinking the same thing. Keeping the mortgage and investing on index funds is the same thing as "leveraging up" your investments. AKA, it's the same as saying "let's borrow 1k from the bank at 3.5% and put it into the SP500".

But in the US, at least, those interest payments are tax deductible.

http://en.wikipedia.org/wiki/Home_mortgage_interest_deductio...

Absent that, yeah, paying off the mortgage would make sense. With it, you need to do some calculations.

Re: It Is Not About the Money, Silly, It Is All About the Time

#17

Post by bkirkbri »

jacquesm wrote: post #4
davidw wrote: post #2

> someone explained to me in a very serious tone of voice that getting rid of your mortgage is stupid because it is a deductible, better to wait with paying it off when you sell the house in 25 years All else being equal, if you can deduct that from your taxes and spend the money on something else - like, say, index funds - you're going to be better off financially, no?

Index funds do not have a guaranteed rate of return but mortgages do have a guaranteed rate of expense.

Exactly. I'm always confused when someone suggests that paying off a mortgage is stupid. Sure, 5% return on mortgage money borrowed at 3% is profitable. But there are many assumptions here: how sure is that spread? Can you pay your mortgage each month if the market tanks? How large is the spread when investment is no longer hypothetical and within some risk tolerance? How much tax are you paying on gains?

To be clear: I do not mean to imply that GP is making such a bold and unconsidered claim. Just that I've been hearing them a lot lately.

Re: It Is Not About the Money, Silly, It Is All About the Time

#18

Post by ekr »

"When I look around me I see people making endless purchases of stuff they don’t actually need [...] I don’t understand any of it."

Oh really, you don't? Then you should do some reading on signaling[http://wiki.lesswrong.com/wiki/Signaling] and evolutionary psychology.

Humanity is driven by sexual pressure, and a big factor in that is social status. Most of the time people don't make purchases with their neocortex, but rather with their "reptilian", so analysis about their lives are out of the question.

Re: It Is Not About the Money, Silly, It Is All About the Time

#19

Post by brightsize »

throwaway283719 wrote: post #3

There can be totally valid reasons for not getting rid of your mortgage even if you have the opportunity - if you have something better to do with the money. If you are paying 3.5% on your mortgage but you can invest somewhere with a return greater than 3.5% after tax, why would you pay down your mortgage?

Dave Ramsey, who, for lack of a better term, one might describe as a "personal finance turn-around guru and radio personality", poses the question you ask in a different way. I paraphrase: "If you owned your house outright, would you go out and get a mortgage on it so that you could invest in the stock market?".

Financial management is about much more than maximizing returns. It's also about managing risk. For most people who have assets that they will depend on in the future, managing risk grows in importance as they grow in age. Taking on debt (a mortgage) in order to make speculative investments is a high-risk endeavor.

Re: It Is Not About the Money, Silly, It Is All About the Time

#20

Post by nilkn »

DontBeADick wrote: post #14

I'm getting tired of all this "live debt free!" nonsense. There's good debt and bad debt, and people like this should learn the difference before giving financial advice.

Debt is like sex. It's better to preach discipline, responsibility, and understanding than abstinence.
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