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homelessness vs a million dollar portfolio??? is the bottom line
I stopped following Ramsey when he said the market is only 5 percent down.
Paying off a mortgage is an investment. The two are not mutually exclusive.
No thanks, I'll take a paid off house first. I know lots of people who had this approach in the 2000s, most of them lost their home and their investments.
Invest. I believe long term mortgages would have lowest monthly payment. If income becomes tight, people would be more able to keep their home. Getting a 50 year mortgage instead of 30 year mortgage would be a way to have more investment funds.
For the vast majority of people it's about behavior, not about math or logic. If it was, then there would be no poor or overweight people.
One caveat, Dave Ramsey specifically says to not pay extra on the mortgage unless you are already saving at least 15% of your gross income for retirement. So it's not a matter of saving for retirement vs paying off the mortgage earlier. But yeah the marginal decision is still as you describe, assuming the additional savings are in a tax advantaged account.
If you have no debt, Dave wants you to be investing 15% of your household income AND have a mortgage. You are not factoring in the "what happens if I lose my job" or we have a pandemic or you become temporarily disabled… life happens. Having the security of a paid-off home when you are say 35-40, then you can invest the entire mortgage payments as I did for the next 15-20 years and then you have way more money than you need and can retire with no questions.
For a lot of folks like myself making extra payments on a 2.5% mortgage when risk free savings vehicles currently pay 4%+ (let alone higher long term equity return averages) is plain mathematical foolishness.
But we humans are slaves to our own psyche and the paid off home is an appealing security for many (for good reason).
Why not included the entire equation????
By that I mean, how much money was saved in interest not paid into the bank from paying the mortgage early.
I bet those numbers are much closer, or even lean more to paying the house off early.
Paying off the mortgage will give you a psychological freedom.
The only thing better than annoying a Dave Ramsey fan, would be to annoy Dave Ramsey himself.
If you lose your job with a paid off house you will be glad you did. Peace of mind and risk are worth a lot.
I’m no longer a follower of Dave Ramsey, but there is no substitute for being debt free and there is no substitute of having the peace of mind of a paid off house.
Wait…have you seen the stock market? What if you started doing this in the beginning of the year? What makes you think next year will be better when Goldman says it will be flat? Curious
Fighting words brotha…fighting words.
If your goal is too die a paper millionaire then listen to Dave. If you want to live a good life do nearly everything Dave says and just pay your mortgage as normal. If might die with a net worth of 500,000 but you were able to travel and live a great life.
Paying off the mortgage is a guarantee unlike the market (especially this year).
Pay off mortgage, I’ve paid off two mortgages and cut them down to 8 years each. People need to stop spending
Jesus this was confusing!
Some critique:
You have to account for taxes paid on the taxable investments vs mortgage paydown. If you live in a high tax state like CA/NY/OR, etc and make good money, maybe you pay ~9% on your dividends to the state, and 15% to the feds. Or even more (10% state, 3.8% NIIT, 20% Fed) Never mind the short term capital gains you will pay at the higher Federal marginal rate. So, a 7% gain in the markets might really be less than 5% after tax.
SALT limitations and phaseouts probably mean you're paying your mortgage with after-tax money. So the interest arbitrage gets slimmer and you are not taking anything into account for risk. 5% to 6% "maybe", vs 3% "certain" if you locked in a while back?
As interest rates rise, equities don't tend to do so well. So you put money into the market, watch it flounder (or go down) all while interest rates rise. Now if you need to sell your home and your money is tied up in an investment that is down, you're going to have to take out a bigger mortgage at the higher prevailing rates, or sell those equities locking in the loss.
The Dave Ramsey Baby Steps suggest that you do not start paying off your house until you have no other debt, are sitting on 3-6 months of expenses in cash, are putting 15% to retirement, and have gotten the kid's college funds squared away.
But rather than being "sophisticated" and "mathematical", ask yourself the question: "If somebody paid off my house today, would I run out to re-mortgage it and put all the money in the stock market?"
I suspect most people would not.
i do both, 470k 30 yr @ 2.2% we do biweekly payment and weekly to the principle and still put away $4k month into brokerage and plan to retire in 2023 under "rule of 55". it just depends on what you can handle and expenses. pretty good video.
risk off or risk on thats the basics of the question
Personally I'm ok with "losing" 200K. I was lucky enough to be able to invest and pay down my house at the same time. Took me 8 years and I already had a little put away. I'm 35 and now I can throw all my weight towards investing for the next 30 years. To me it's worth not having to worry about coming up with a mortgage payment every month.
As I write this I just sent 11K towards my principle, leaving a balance of 3K. Which I will pay down to $100 on Wednesday and then ask for my pay off letter on the 28th.
Thanks Eric good info
I followed Dave's advise until I realized how long it would take me to own a home. I got my mortgage with low down payment 5 years ago for 359k with PMI. I payed down the mortgage a bit then refinanced at all time lows and got rid of my PMI. Now my home is worth almost 700k!!! I'd still be renting if I listened to Dave!!