11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

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X528
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11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by X528 » Wed Oct 23, 2019 7:46 pm

11 Reasons to Carry a Big, Long Mortgage by Ric Edelman:

https://smartwithyourmoney.com/11-reaso ... -mortgage/

Is Ric Edelman right or wrong?

stoptothink
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by stoptothink » Wed Oct 23, 2019 7:48 pm

X528 wrote:
Wed Oct 23, 2019 7:46 pm
11 Reasons to Carry a Big, Long Mortgage by Ric Edelman:

https://smartwithyourmoney.com/11-reaso ... -mortgage/

Is Ric Edelman right or wrong?
I counted 6 of the 11 that are either nonsense or pretty much irrelevant to most homeowners.

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unclescrooge
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by unclescrooge » Wed Oct 23, 2019 7:49 pm

While technically valid points, #4 and #5 aren't relevant any more.

I would never pay down my mortgage, but I didn't advocate it as the right choice for everyone.

mhalley
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by mhalley » Wed Oct 23, 2019 8:00 pm

Yes, he’s right and wrong. Personal finance is personal, and many things are in a grey area that depend on an individuals feelings about debt among other things.

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JoeRetire
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by JoeRetire » Wed Oct 23, 2019 8:03 pm

Most of the "reasons" are true.

true: Reason #1 Your Mortgage Doesn’t Affect Your Home’s Value
true: Reason #2 A Mortgage Won’t Stop You From Building Equity In The House
true: Reason #3 A Mortgage Is Cheap Money
For some, but fewer than in the past: Reasons #4 and #5 Your Mortgage Interest Is Tax-Deductible. And Mortgage Interest Is Tax-Favorable.
true: Reason #6 Mortgage Payments Get Easier Over Time
true: Reason #7 Mortgages Allow You To Sell Without Selling
true: Reasons #8 and #9 Mortgages Allow You To Invest More Money And To Invest It More Quickly. Mortgages Allow You To Create More Wealth Than You Otherwise Would.
true: Reason #10 Mortgages Give You Greater Liquidity And Flexibility
true: Reason #11 You’ll Never Get Rid Of Your Monthly Payment, No Matter How Hard You Try

With the true reasons, not all of them matter much to all people. And some of them are more like "reasons why carrying a big, long mortgage isn't really anything to worry about".

The #1 good reason not to carry a mortgage - if the thought of having a mortgage keeps you awake at night. In which case maybe you shouldn't have gotten a mortgage in the first place.
Don't be a lemming.

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JoMoney
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by JoMoney » Wed Oct 23, 2019 8:16 pm

I assumed the unspoken #1 Reason was so you can have more money on balance invested with Ric Edelman
You take the risk with a mortgage and stock investments, he collects the fee's for assets under management

"Head's I win, Tails you lose" Sounds like a great plan for Ric :mrgreen:
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by Jebediah » Wed Oct 23, 2019 8:30 pm

JoeRetire wrote:
Wed Oct 23, 2019 8:03 pm
The #1 good reason not to carry a mortgage - if the thought of having a mortgage keeps you awake at night. In which case maybe you shouldn't have gotten a mortgage in the first place.
I think the #1 good reason not to carry a mortgage is that it's many thousands of dollars a year completely wasted on interest payments.

I've never understood the tolerance for interest payments concurrent with a total intolerance for expense ratios. That's not defending expense ratios-- neither should be tolerated!

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by grabiner » Wed Oct 23, 2019 8:53 pm

JoeRetire wrote:
Wed Oct 23, 2019 8:03 pm
Most of the "reasons" are true.
The keys for investors are these four:
true: Reason #7 Mortgages Allow You To Sell Without Selling
true: Reasons #8 and #9 Mortgages Allow You To Invest More Money And To Invest It More Quickly. Mortgages Allow You To Create More Wealth Than You Otherwise Would.
true: Reason #10 Mortgages Give You Greater Liquidity And Flexibility
While these may be valid, you need to compare the options.

#7: Taking out a home-equity loan or a cash-out refinance allows you to get equity out of your home, but that may not be a good deal, with the interest non-deductible and likely a higher rate.

#8 and #9: Paying down a mortgage, or making a larger down payment, is a risk-free return. This may be better or worse than the low-risk return you get on the bonds which are part of your portfolio. It isn't relevant to compare mortgage rates to stock returns, except if you are so risk-tolerant that you are borrowing money and still have 100$ of your investments in stock; otherwise, you have the option of buying more stock even if you do pay down your mortgage, by selling bonds to buy more stock.

#10: Liquidity is an advantage of keeping the mortgage and making taxable investments, but that comes at a greater cost than keeping the mortgage and investing more in your 401(k). If you invest in your 401(k) instead, you don't have liquidity because withdrawals from a 401(k) are subject to penalty as well as the tax. Still, the liquidity is important: you shouldn't pay down a mortgage unless you keep an adequate emergency fund (which can be in a Roth IRA in which contributions can be withdrawn penalty-free).

#8-#10 are the points I usually make in forum discussions whether to pay off a mortgage or not. If keeping your mortgage allows you to get a 401(k) match (#8), or invest in bonds at a rate comparable to the after-tax rate on your mortgage (#9), or keep money liquid which you are likely to need (#10), then I recommend keeping it. (#9 is the reason I am still keeping mine). But with most mortgages non-deductible now, I often recommend paying a mortgage down.
Jebediah wrote:
Wed Oct 23, 2019 8:30 pm
I think the #1 good reason not to carry a mortgage is that it's many thousands of dollars a year completely wasted on interest payments.
It isn't wasted, as the money not used to pay down the mortgage is earning some benefit for you. If your mortgage is 2% after tax and your bonds are yielding 2%, you pay and receive the same amount of interest. If your mortgage is 2.5% after tax and your bonds are yielding 2%, it may be worth paying that 0.5% for liquidity.
Wiki David Grabiner

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by Starfish » Wed Oct 23, 2019 9:14 pm

grabiner wrote:
Wed Oct 23, 2019 8:53 pm
It isn't wasted, as the money not used to pay down the mortgage is earning some benefit for you. If your mortgage is 2% after tax and your bonds are yielding 2%, you pay and receive the same amount of interest. If your mortgage is 2.5% after tax and your bonds are yielding 2%, it may be worth paying that 0.5% for liquidity.
Having money in bonds AND a mortgage is a completely different subject.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by banjo » Wed Oct 23, 2019 9:26 pm

Investing borrowed money. Investing on margin. The leverage works great when the market goes up. The leverage also works, but in a bad way, when the market goes down.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by SGM » Wed Oct 23, 2019 9:31 pm

I come from the perspective of having mortgages that were between 13% and 8% interest. What a relief it was to pay off the last mortgage. In retirement we have no mortgage. Maintenance, insurance and real estate taxes stay with you in retirement.

I invested when I had a mortgage and without, but I had a lot more money available to invest without the mortgage. If I did pick up a mortgage after having already owned the property it would not be tax deductible. This was true before the recent tax changes.

Most of the wealthy people I know do not have mortgages unless their business is real estate. A buddy of mine admires Edelman, but would not sign up for a large conference developed my Edelman as he figures he would never stop receiving phone calls and emails attempting to make him a client. I am not a fan.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by EddyB » Wed Oct 23, 2019 9:49 pm

banjo wrote:
Wed Oct 23, 2019 9:26 pm
Investing borrowed money. Investing on margin. The leverage works great when the market goes up. The leverage also works, but in a bad way, when the market goes down.
If you expect the market to be down for thirty years, it’s not investing the fixed-rate mortgage that’s going to be the problem.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by EddyB » Wed Oct 23, 2019 9:52 pm

Jebediah wrote:
Wed Oct 23, 2019 8:30 pm
JoeRetire wrote:
Wed Oct 23, 2019 8:03 pm
The #1 good reason not to carry a mortgage - if the thought of having a mortgage keeps you awake at night. In which case maybe you shouldn't have gotten a mortgage in the first place.
I think the #1 good reason not to carry a mortgage is that it's many thousands of dollars a year completely wasted on interest payments.

I've never understood the tolerance for interest payments concurrent with a total intolerance for expense ratios. That's not defending expense ratios-- neither should be tolerated!
Because there’s no good reason to think that advisors’ fees more than pay for themselves over the long run, but people have seen and do expect that market-cap portfolios beat fixed mortgage rates over decades. Totally different.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by ThePrince » Wed Oct 23, 2019 10:28 pm

banjo wrote:
Wed Oct 23, 2019 9:26 pm
Investing borrowed money. Investing on margin. The leverage works great when the market goes up. The leverage also works, but in a bad way, when the market goes down.
+1

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by Jebediah » Wed Oct 23, 2019 10:41 pm

EddyB wrote:
Wed Oct 23, 2019 9:52 pm
Jebediah wrote:
Wed Oct 23, 2019 8:30 pm
JoeRetire wrote:
Wed Oct 23, 2019 8:03 pm
The #1 good reason not to carry a mortgage - if the thought of having a mortgage keeps you awake at night. In which case maybe you shouldn't have gotten a mortgage in the first place.
I think the #1 good reason not to carry a mortgage is that it's many thousands of dollars a year completely wasted on interest payments.

I've never understood the tolerance for interest payments concurrent with a total intolerance for expense ratios. That's not defending expense ratios-- neither should be tolerated!
Because there’s no good reason to think that advisors’ fees more than pay for themselves over the long run, but people have seen and do expect that market-cap portfolios beat fixed mortgage rates over decades. Totally different.
So you're effectively saying the idea is that a mortgage is a good thing when used as stock leverage. But:

#1) As Grabiner points out, 100% stock allocations are rare. The salient comparison is mortgage cost vs bond return, which is almost never carry-positive. e.g. mortgages rates are currently around 3.5-4% while MUNI yields are around 1.6%.

#2) Margin rates tend to be slightly better than mortgage rates. 2.9% for 1m at IB currently. But nobody gushes over margin rates like they do mortgages. I reckon this mostly has to do with the American mythology of home ownership as magical wealth builder.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by EddyB » Wed Oct 23, 2019 11:07 pm

Jebediah wrote:
Wed Oct 23, 2019 10:41 pm
EddyB wrote:
Wed Oct 23, 2019 9:52 pm
Jebediah wrote:
Wed Oct 23, 2019 8:30 pm
JoeRetire wrote:
Wed Oct 23, 2019 8:03 pm
The #1 good reason not to carry a mortgage - if the thought of having a mortgage keeps you awake at night. In which case maybe you shouldn't have gotten a mortgage in the first place.
I think the #1 good reason not to carry a mortgage is that it's many thousands of dollars a year completely wasted on interest payments.

I've never understood the tolerance for interest payments concurrent with a total intolerance for expense ratios. That's not defending expense ratios-- neither should be tolerated!
Because there’s no good reason to think that advisors’ fees more than pay for themselves over the long run, but people have seen and do expect that market-cap portfolios beat fixed mortgage rates over decades. Totally different.
So you're effectively saying the idea is that a mortgage is a good thing when used as stock leverage. But:

#1) As Grabiner points out, 100% stock allocations are rare. The salient comparison is mortgage cost vs bond return, which is almost never carry-positive. e.g. mortgages rates are currently around 3.5-4% while MUNI yields are around 1.6%.

#2) Margin rates tend to be slightly better than mortgage rates. 2.9% for 1m at IB currently. But nobody gushes over margin rates like they do mortgages. I reckon this mostly has to do with the American mythology of home ownership as magical wealth builder.
Margin borrowing isn’t at fixed long-term rates. It’s not at all comparable. It’s the fixed long-term rate that lets one be far more comfortable with beating the borrowing cost, which need not suggest a 100% stock allocation. Demanding comparison to risk-free rates clearly makes less sense for long-term, fixed-rate borrowing then it does for short-term, variable borrowing (e.g., margin).

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by Jebediah » Wed Oct 23, 2019 11:21 pm

EddyB wrote:
Wed Oct 23, 2019 11:07 pm
Jebediah wrote:
Wed Oct 23, 2019 10:41 pm
EddyB wrote:
Wed Oct 23, 2019 9:52 pm
Jebediah wrote:
Wed Oct 23, 2019 8:30 pm
JoeRetire wrote:
Wed Oct 23, 2019 8:03 pm
The #1 good reason not to carry a mortgage - if the thought of having a mortgage keeps you awake at night. In which case maybe you shouldn't have gotten a mortgage in the first place.
I think the #1 good reason not to carry a mortgage is that it's many thousands of dollars a year completely wasted on interest payments.

I've never understood the tolerance for interest payments concurrent with a total intolerance for expense ratios. That's not defending expense ratios-- neither should be tolerated!
Because there’s no good reason to think that advisors’ fees more than pay for themselves over the long run, but people have seen and do expect that market-cap portfolios beat fixed mortgage rates over decades. Totally different.
So you're effectively saying the idea is that a mortgage is a good thing when used as stock leverage. But:

#1) As Grabiner points out, 100% stock allocations are rare. The salient comparison is mortgage cost vs bond return, which is almost never carry-positive. e.g. mortgages rates are currently around 3.5-4% while MUNI yields are around 1.6%.

#2) Margin rates tend to be slightly better than mortgage rates. 2.9% for 1m at IB currently. But nobody gushes over margin rates like they do mortgages. I reckon this mostly has to do with the American mythology of home ownership as magical wealth builder.
Margin borrowing isn’t at fixed long-term rates. It’s not at all comparable. It’s the fixed long-term rate that lets one be far more comfortable with beating the borrowing cost, which need not suggest a 100% stock allocation. Demanding comparison to risk-free rates clearly makes less sense for long-term, fixed-rate borrowing then it does for short-term, variable borrowing (e.g., margin).
Sure margin rates are variable (on a tiny scale) but they're pretty much always going to beat mortgage rates. If that were to change (doubtful) then you could switch over to a home loan for your levered stock investing adventure.

If not 100% stock, you're carry-negative on the bond portion of your allocation and are advised to apply that money towards paying down the mortgage.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by EddyB » Wed Oct 23, 2019 11:58 pm

Jebediah wrote:
Wed Oct 23, 2019 11:21 pm
EddyB wrote:
Wed Oct 23, 2019 11:07 pm
Jebediah wrote:
Wed Oct 23, 2019 10:41 pm
EddyB wrote:
Wed Oct 23, 2019 9:52 pm
Jebediah wrote:
Wed Oct 23, 2019 8:30 pm


I think the #1 good reason not to carry a mortgage is that it's many thousands of dollars a year completely wasted on interest payments.

I've never understood the tolerance for interest payments concurrent with a total intolerance for expense ratios. That's not defending expense ratios-- neither should be tolerated!
Because there’s no good reason to think that advisors’ fees more than pay for themselves over the long run, but people have seen and do expect that market-cap portfolios beat fixed mortgage rates over decades. Totally different.
So you're effectively saying the idea is that a mortgage is a good thing when used as stock leverage. But:

#1) As Grabiner points out, 100% stock allocations are rare. The salient comparison is mortgage cost vs bond return, which is almost never carry-positive. e.g. mortgages rates are currently around 3.5-4% while MUNI yields are around 1.6%.

#2) Margin rates tend to be slightly better than mortgage rates. 2.9% for 1m at IB currently. But nobody gushes over margin rates like they do mortgages. I reckon this mostly has to do with the American mythology of home ownership as magical wealth builder.
Margin borrowing isn’t at fixed long-term rates. It’s not at all comparable. It’s the fixed long-term rate that lets one be far more comfortable with beating the borrowing cost, which need not suggest a 100% stock allocation. Demanding comparison to risk-free rates clearly makes less sense for long-term, fixed-rate borrowing then it does for short-term, variable borrowing (e.g., margin).
Sure margin rates are variable (on a tiny scale) but they're pretty much always going to beat mortgage rates. If that were to change (doubtful) then you could switch over to a home loan for your levered stock investing adventure.

If not 100% stock, you're carry-negative on the bond portion of your allocation and are advised to apply that money towards paying down the mortgage.
I may not understand you, because it seems you’re saying that over the next 30 years, you don’t expect margin rates to exceed current mortgage rates. Certainly if they do, you won’t then be able to get a new mortgage at lower than current rates. The comparison in only a moment in time misses the value of locking in the rate.

As to your other point, I take it you don’t believe there’s value in holding stocks and bonds as uncorrelated assets.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by SevenBridgesRoad » Thu Oct 24, 2019 1:03 am

Yawn. Same old argument, over and over and over, a thousand threads here. Same as it ever was: there are two camps. Since folks are weighing in yet again, I'm in the "mortgage paid off well before retirement" camp. This camp wears face paint telling the world, heck yeah, I sleep well at night. In bad times, I can drop my expenses like a rock and not worry about about paying a bank so I can live in my home.

I understand that the other camp sees things differently and I'm not trying to convert one team to the other (shameless Seinfeld reference).
Retired 2018 age 61 | "Not using an alarm is one of the great glories of my life." Robert Greene

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by JoeRetire » Thu Oct 24, 2019 7:33 am

Jebediah wrote:
Wed Oct 23, 2019 8:30 pm
JoeRetire wrote:
Wed Oct 23, 2019 8:03 pm
The #1 good reason not to carry a mortgage - if the thought of having a mortgage keeps you awake at night. In which case maybe you shouldn't have gotten a mortgage in the first place.
I think the #1 good reason not to carry a mortgage is that it's many thousands of dollars a year completely wasted on interest payments.

I've never understood the tolerance for interest payments concurrent with a total intolerance for expense ratios. That's not defending expense ratios-- neither should be tolerated!
Thus people should never get a mortgage.
Don't be a lemming.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by EddyB » Thu Oct 24, 2019 9:15 am

SevenBridgesRoad wrote:
Thu Oct 24, 2019 1:03 am
Yawn. Same old argument, over and over and over, a thousand threads here. Same as it ever was: there are two camps. Since folks are weighing in yet again, I'm in the "mortgage paid off well before retirement" camp. This camp wears face paint telling the world, heck yeah, I sleep well at night. In bad times, I can drop my expenses like a rock and not worry about about paying a bank so I can live in my home.

I understand that the other camp sees things differently and I'm not trying to convert one team to the other (shameless Seinfeld reference).
I’m only trying to convince one person to explain the facts on which he’s basing his statements. My mortgage balance is something like 5% of my net worth, so it’s not something I see as a big factor either way.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by Starchild » Thu Oct 24, 2019 9:24 am

Jebediah wrote:
Wed Oct 23, 2019 8:30 pm
JoeRetire wrote:
Wed Oct 23, 2019 8:03 pm
The #1 good reason not to carry a mortgage - if the thought of having a mortgage keeps you awake at night. In which case maybe you shouldn't have gotten a mortgage in the first place.
I think the #1 good reason not to carry a mortgage is that it's many thousands of dollars a year completely wasted on interest payments.

I've never understood the tolerance for interest payments concurrent with a total intolerance for expense ratios. That's not defending expense ratios-- neither should be tolerated!
+1. You ever see what's taken off the principal on the first several years of a mortgage? Almost nothing. The bank takes thousands and thousands. No thanks. The best feeling in the world was getting rid of the mortgage, more so than all these other 11 reasons combined.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by banjo » Thu Oct 24, 2019 9:36 am

EddyB wrote:
Wed Oct 23, 2019 9:49 pm
banjo wrote:
Wed Oct 23, 2019 9:26 pm
Investing borrowed money. Investing on margin. The leverage works great when the market goes up. The leverage also works, but in a bad way, when the market goes down.
If you expect the market to be down for thirty years, it’s not investing the fixed-rate mortgage that’s going to be the problem.
The market doesn't have to be down for 30 years to force you out of your home. It only has to dip temporarily down far enough to make you miss payments. Witness the crash of '08 and how many people lost their homes.

There is more to a mortgage than just the interest rates. When you take out a mortgage, you sign a contract saying that the bank can take your home if you miss payments. You do not have to suffer through 30 years of downturn for that to happen. A short term downturn that is severe enough can snowball into the loss. After that, if the market goes back up for the next 20 years it doesn't matter much.

If you do not have a mortgage, there is no such contract and it is much more difficult for someone to evict you from your own home during bad financial times.

We are retired now and happily mortgage free.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by EddyB » Thu Oct 24, 2019 9:53 am

banjo wrote:
Thu Oct 24, 2019 9:36 am
EddyB wrote:
Wed Oct 23, 2019 9:49 pm
banjo wrote:
Wed Oct 23, 2019 9:26 pm
Investing borrowed money. Investing on margin. The leverage works great when the market goes up. The leverage also works, but in a bad way, when the market goes down.
If you expect the market to be down for thirty years, it’s not investing the fixed-rate mortgage that’s going to be the problem.
The market doesn't have to be down for 30 years to force you out of your home. It only has to dip temporarily down far enough to make you miss payments. Witness the crash of '08 and how many people lost their homes.

There is more to a mortgage than just the interest rates. When you take out a mortgage, you sign a contract saying that the bank can take your home if you miss payments. You do not have to suffer through 30 years of downturn for that to happen. A short term downturn that is severe enough can snowball into the loss. After that, if the market goes back up for the next 20 years it doesn't matter much.

If you do not have a mortgage, there is no such contract and it is much more difficult for someone to evict you from your own home during bad financial times.

We are retired now and happily mortgage free.
So never take out a mortgage? I would not encourage someone at the margin of ability to repay a loan (someone depending on investment returns over a short term) to take out the loan at all. But I think there’s a big range of circumstance, and reasonable borrowing decisions shouldn’t be dismissed simply because of the possibility of unreasonable borrowing decisions.
Last edited by EddyB on Thu Oct 24, 2019 9:54 am, edited 1 time in total.

wolf359
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by wolf359 » Thu Oct 24, 2019 9:54 am

true: Reason #11 You’ll Never Get Rid Of Your Monthly Payment, No Matter How Hard You Try
While technically true, this is not a reason to carry a big, long mortgage. The fact that you will have ongoing expenses other than a loan doesn't mean you should take out the biggest, longest loan possible.

Let's assume the mortgage plus taxes and insurance is $1,500, of which $1,000 goes to the mortgage and $500 goes to taxes and insurance. Getting rid of that mortgage expense is a huge benefit in retirement. Each $1 reduction in a monthly expense reduces your required nest egg by $300-$400. Getting rid of a $1,000 mortgage expense reduces your required retirement nest egg by at least $300,000.

Source: (Math)
$1 monthly expense x 12 months x 25 = $300.
25 is the multiplier for 4% SWR
33 is the multiplier for 3% SWR

I'm in favor of holding onto a reasonably sized low interest mortgage for as long as possible, but not into retirement. You also shouldn't buy more house than you can afford just to get a big mortgage.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by Broken Man 1999 » Thu Oct 24, 2019 9:59 am

I think Edelman must have been wearing his Captain Obvious tee-shirt when he phoned this in.

Broken Man 1999
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by smitcat » Thu Oct 24, 2019 10:19 am

banjo wrote:
Thu Oct 24, 2019 9:36 am
EddyB wrote:
Wed Oct 23, 2019 9:49 pm
banjo wrote:
Wed Oct 23, 2019 9:26 pm
Investing borrowed money. Investing on margin. The leverage works great when the market goes up. The leverage also works, but in a bad way, when the market goes down.
If you expect the market to be down for thirty years, it’s not investing the fixed-rate mortgage that’s going to be the problem.
The market doesn't have to be down for 30 years to force you out of your home. It only has to dip temporarily down far enough to make you miss payments. Witness the crash of '08 and how many people lost their homes.

There is more to a mortgage than just the interest rates. When you take out a mortgage, you sign a contract saying that the bank can take your home if you miss payments. You do not have to suffer through 30 years of downturn for that to happen. A short term downturn that is severe enough can snowball into the loss. After that, if the market goes back up for the next 20 years it doesn't matter much.

If you do not have a mortgage, there is no such contract and it is much more difficult for someone to evict you from your own home during bad financial times.

We are retired now and happily mortgage free.

"The market doesn't have to be down for 30 years to force you out of your home. It only has to dip temporarily down far enough to make you miss payments. Witness the crash of '08 and how many people lost their homes."

A good example actually.
We knew more than a few folks who weathered this time period in the Northeast US.
- one person had paid his mortgage early and was almost done with it, he had little liquidity. within 6 months he was missing mortgage payments and utilities...the ultimate ending was very poor.
- another was not prepaying his mortgage but was savings the difference. He was able to work a deal with the bank for lower payments and pay all taxes and utilities for the interim... his results over time were not too painful.

Lessons learned:
- liquidity is king
- HELOC's will immediately disappear when you are separated from a company
- Loan holders will work with you if you have a payment plan
- no one will throw you out on the street if you are making partial payments
- utility companies will shut off services well before loan holders react
- more choices are always better than less choices

Choose wisely....

smitcat
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by smitcat » Thu Oct 24, 2019 10:21 am

Starchild wrote:
Thu Oct 24, 2019 9:24 am
Jebediah wrote:
Wed Oct 23, 2019 8:30 pm
JoeRetire wrote:
Wed Oct 23, 2019 8:03 pm
The #1 good reason not to carry a mortgage - if the thought of having a mortgage keeps you awake at night. In which case maybe you shouldn't have gotten a mortgage in the first place.
I think the #1 good reason not to carry a mortgage is that it's many thousands of dollars a year completely wasted on interest payments.

I've never understood the tolerance for interest payments concurrent with a total intolerance for expense ratios. That's not defending expense ratios-- neither should be tolerated!
+1. You ever see what's taken off the principal on the first several years of a mortgage? Almost nothing. The bank takes thousands and thousands. No thanks. The best feeling in the world was getting rid of the mortgage, more so than all these other 11 reasons combined.
If the match works to pay off a mortgage then that makes sense.
If the math works out to keep a mortgage then that also makes sense.
Concerning yourself of the bank makes a % that is favorable to them and yourself at the same time makes no sense.

rebellovw
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by rebellovw » Thu Oct 24, 2019 10:24 am

I could probably come up with 11 reasons why I'm happy that I have no mortgage, no credit card debt etc. Because of that I was able to save and reach my goals - while having a mortgage previously - I was going nowhere.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by LiterallyIronic » Thu Oct 24, 2019 10:30 am

My assessment:

1) Not relevant.
2) Not relevant.
3) Relevant. You can (probably) invest and get a better return than your mortgage rate.
4 & 5) Not relevant if you're not itemizing, which most people aren't.
6) Too dangerous to assume that your income will increase in the future.
7) Sounds like a terrible idea.
8 & 9) This is the same as three, so 3 of the 11 points are the same.
10) Relevant, but skewed. Yes, if both lost their jobs while the mortgage was still in effect, the one with the smaller monthly payment is in better shape. But if they both lost their jobs at a random, unknown point within timeframe of getting the mortgage and its original pay-off date, then the one paying extra has a chance of randomly losing his job at a time with the mortgage or a time without the mortgage (because it's already paid off). The more he pays ahead, the greater the odds that the random job loss will occur after the mortgage is paid off rather than before.
11) Not relevant.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by MindBogler » Thu Oct 24, 2019 10:39 am

smitcat wrote:
Thu Oct 24, 2019 10:19 am
A good example actually.
We knew more than a few folks who weathered this time period in the Northeast US.
- one person had paid his mortgage early and was almost done with it, he had little liquidity. within 6 months he was missing mortgage payments and utilities...the ultimate ending was very poor.
- another was not prepaying his mortgage but was savings the difference. He was able to work a deal with the bank for lower payments and pay all taxes and utilities for the interim... his results over time were not too painful.

Lessons learned:
- liquidity is king
- HELOC's will immediately disappear when you are separated from a company
- Loan holders will work with you if you have a payment plan
- no one will throw you out on the street if you are making partial payments
- utility companies will shut off services well before loan holders react
- more choices are always better than less choices

Choose wisely....
I witnessed similar stories play out in 2008. Houses with high loan to values and upside-down properties were left alone while those with significant equity were foreclosed. Having too much equity compared to the mortgage balance gives the bank a perverse incentive to take your home first. Those who were over their heads with too much house, well, the bank forgot. Some people lived in these homes without paying anything for years! I paid my mortgage all through the crisis but there were some tight months. I won't ever be in that situation again.

This is why practice and advocate saving a payoff fund in liquid accounts with a reasonable mix of stock / bonds. Once you have enough money to pay the mortgage in its entirety then decide whether to do so. Yes, with this strategy you will pay taxes. Yes, it requires conviction and you must not touch the money for other purposes. A small allocation to stocks (20-40%) in the payoff fund would historically outpace the extra taxes and end up earning more than the savings from paying down a low (<4% mortgage). In either case the flexibility afforded by this strategy is worth it to me and my family.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by CurlyDave » Thu Oct 24, 2019 10:41 am

JoeRetire wrote:
Wed Oct 23, 2019 8:03 pm

...The #1 good reason not to carry a mortgage - if the thought of having a mortgage keeps you awake at night. In which case maybe you shouldn't have gotten a mortgage in the first place.
I believe that Ambien and an aggressive AA will produce better financial results...

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by Jebediah » Thu Oct 24, 2019 10:43 am

EddyB wrote:
Wed Oct 23, 2019 11:58 pm
Jebediah wrote:
Wed Oct 23, 2019 11:21 pm
EddyB wrote:
Wed Oct 23, 2019 11:07 pm
Jebediah wrote:
Wed Oct 23, 2019 10:41 pm
EddyB wrote:
Wed Oct 23, 2019 9:52 pm


Because there’s no good reason to think that advisors’ fees more than pay for themselves over the long run, but people have seen and do expect that market-cap portfolios beat fixed mortgage rates over decades. Totally different.
So you're effectively saying the idea is that a mortgage is a good thing when used as stock leverage. But:

#1) As Grabiner points out, 100% stock allocations are rare. The salient comparison is mortgage cost vs bond return, which is almost never carry-positive. e.g. mortgages rates are currently around 3.5-4% while MUNI yields are around 1.6%.

#2) Margin rates tend to be slightly better than mortgage rates. 2.9% for 1m at IB currently. But nobody gushes over margin rates like they do mortgages. I reckon this mostly has to do with the American mythology of home ownership as magical wealth builder.
Margin borrowing isn’t at fixed long-term rates. It’s not at all comparable. It’s the fixed long-term rate that lets one be far more comfortable with beating the borrowing cost, which need not suggest a 100% stock allocation. Demanding comparison to risk-free rates clearly makes less sense for long-term, fixed-rate borrowing then it does for short-term, variable borrowing (e.g., margin).
Sure margin rates are variable (on a tiny scale) but they're pretty much always going to beat mortgage rates. If that were to change (doubtful) then you could switch over to a home loan for your levered stock investing adventure.

If not 100% stock, you're carry-negative on the bond portion of your allocation and are advised to apply that money towards paying down the mortgage.
I may not understand you, because it seems you’re saying that over the next 30 years, you don’t expect margin rates to exceed current mortgage rates. Certainly if they do, you won’t then be able to get a new mortgage at lower than current rates. The comparison in only a moment in time misses the value of locking in the rate.

As to your other point, I take it you don’t believe there’s value in holding stocks and bonds as uncorrelated assets.
If you really worked out some scenarios I think you'd find that you're over-valuing your mortgage as hedge against rising rates. It's an awfully expensive hedge and you're making a wild guess that you'll someday make it to carry positive. By that time (if you ever get there), how much $ have you spent being carry negative? Furthermore, if you bought extra term risk with your mortgage $, you'll have to recoup the face value loss of the bonds when rates rise on top of the years of interest payments.

You might come out ahead but gambles where you pay a lot of money upfront for a limited and iffy upside are typically not a great idea.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by nisiprius » Thu Oct 24, 2019 10:49 am

This is a thoroughly dishonest piece, full of spin, and a good reminder never to trust "advice" from an obviously interested party. Just to take one:

"Reason #7: Mortgages Allow You To Sell Without Selling."

This is a grotesque distortion. The only possible purpose for using that language is to deceive you by making things sound better--by avoiding unpleasant words like "borrow" and "debt"--even though they are accurate, and "sell" is inaccurate.

When you "sell" something, the person you sell it to then "owns" the thing. If you sell a share of a thing, the person owns a share of the thing. That person then becomes a financial participant, and is taking on the financial risks that go along with the thing that was sold.

For example, if you buy a condominium, from the point when you bought it, you have taken on that risk. If you paid $400,000, and the value of it falls $200,000, that loss is your loss. And a normal "sale" is irreversible. You can't go back to the condomium's original owner and say "Here's your condominium back, now give me my $400,000 back."

When you mortgage a house, the bank does not own the house. You do. What the bank owns is not your house, or a share in your house. The bank owns your debt. The bank owns a legal contract saying you owe the bank a certain number of dollars that must be paid back, with interest, in payments of specific numbers of dollars on specific dates. The bank does not participate, except in an indirect way, in the risk of the value of your house fluctuating. If you have a mortgage for $400,000 and the house is only worth $200,000, the bank does not say "well, that is tough luck on both of us." As far as the bank is concerned, you owe every dollar. Various provisions of the mortgage are there to assure that when you get the mortgage, you continue to bear all the risk, as far as possible, and the bank bears none of the risk, as far as possible.

So, no, a mortgage is not at all like "allowing you to sell without selling."

It is, of course, allowing you to borrow money without selling. It is debt, not a sale.

You may say "everyone knows this," but the point is that Edelman chose to use inaccurate language. He could have just as well have written "Mortgages allow you to borrow money without selling." Why didn't he? Because he wanted you not to think about borrowing or debt. My mother taught me that the essence of a lie is not literal truth or falsehood, it is the intention to deceive. So, in brief, Edelman is lying.

Don't take advice from liars.
Last edited by nisiprius on Thu Oct 24, 2019 10:50 am, edited 2 times in total.
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by CyclingDuo » Thu Oct 24, 2019 10:50 am

banjo wrote:
Thu Oct 24, 2019 9:36 am
The market doesn't have to be down for 30 years to force you out of your home. It only has to dip temporarily down far enough to make you miss payments. Witness the crash of '08 and how many people lost their homes.
7.8% of people lost their homes - or about 10 Million lost their homes in the US out of 127.59 million homes.

https://www.cbsnews.com/news/5-groups-s ... al-crisis/

https://www.census.gov/housing/hvs/file ... spress.pdf

https://www.businessinsider.com/heres-w ... now-2018-8
banjo wrote:
Thu Oct 24, 2019 9:36 am
There is more to a mortgage than just the interest rates. When you take out a mortgage, you sign a contract saying that the bank can take your home if you miss payments. You do not have to suffer through 30 years of downturn for that to happen. A short term downturn that is severe enough can snowball into the loss. After that, if the market goes back up for the next 20 years it doesn't matter much.

If you do not have a mortgage, there is no such contract and it is much more difficult for someone to evict you from your own home during bad financial times.

We are retired now and happily mortgage free.
Kudos on being mortgage free! :beer

For those who have mortgages or are contemplating getting one, we know the big 3 - actually big 4 - expenses are housing, transportation, food, and health care. Keeping the housing PITI expense (principal, interest, taxes, insurance) at 25% or lower of take home (net income) sets one up for the best financial success.

We keep our PITI at 11% of gross income and 21% of our net income (take home pay after mandatory pension contribution, voluntary retirement contributions, ESPP, taxes, and health care are taken out of gross). Torn between just writing a check and getting our debt free scream done and over with 8-) compared to our current additional principal payments (about 3-4% of our net income) we make every month. The latter feels a lot like dipping water out of the ocean with a teaspoon at times, but at least we are making progress.

We have read and posted about Edelman before. Have both Edelman and Ramsey ever been in the same room together before? :shock:

Ramsey vs. Edelman....

http://www.bankers-anonymous.com/blog/d ... certainty/

How many of those nearly 10 million homes that were lost during the financial crisis exceeded that 25% percentage of their net income going towards housing (PITI)? Obviously, layoffs contributed to a chunk of the financial stress and home ownership loss, but the large chunk of the home loss occurred with lending standards that far exceeded risky (low credit scores, high risk option ARMs, bad credit, subprime, second mortgages, and outright fraud).

We should all feel encouraged on these forums by discussions of paying off a mortgage, keeping PITI at a low percentage of net income (take home pay) and how it contributes to the overall picture of one's household finances.

A tip of the hat to you, banjo on your mortgage free retirement! We'll get there one way or another in spite of the Edelman vs. Ramsey argument.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by CurlyDave » Thu Oct 24, 2019 10:56 am

JoMoney wrote:
Wed Oct 23, 2019 8:16 pm
I assumed the unspoken #1 Reason was so you can have more money on balance invested with Ric Edelman
You take the risk with a mortgage and stock investments, he collects the fee's for assets under management

"Head's I win, Tails you lose" Sounds like a great plan for Ric :mrgreen:
I think you are being harsh on Ric here.

I don't have to have a nickel invested with him in order to take advantage of his analysis.

OTOH, I have independently come to many of the same conclusions and have had substantial mortgages all of my life. This has greatly benefitted my family. I am even carrying substantial mortgages in retirement.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by trueblueky » Thu Oct 24, 2019 10:57 am

grabiner wrote:
Wed Oct 23, 2019 8:53 pm
JoeRetire wrote:
Wed Oct 23, 2019 8:03 pm
Most of the "reasons" are true.
The keys for investors are these four:
true: Reason #7 Mortgages Allow You To Sell Without Selling
true: Reasons #8 and #9 Mortgages Allow You To Invest More Money And To Invest It More Quickly. Mortgages Allow You To Create More Wealth Than You Otherwise Would.
true: Reason #10 Mortgages Give You Greater Liquidity And Flexibility
While these may be valid, you need to compare the options.

#7: Taking out a home-equity loan or a cash-out refinance allows you to get equity out of your home, but that may not be a good deal, with the interest non-deductible and likely a higher rate.

#8 and #9: Paying down a mortgage, or making a larger down payment, is a risk-free return. This may be better or worse than the low-risk return you get on the bonds which are part of your portfolio. It isn't relevant to compare mortgage rates to stock returns, except if you are so risk-tolerant that you are borrowing money and still have 100$ of your investments in stock; otherwise, you have the option of buying more stock even if you do pay down your mortgage, by selling bonds to buy more stock.

#10: Liquidity is an advantage of keeping the mortgage and making taxable investments, but that comes at a greater cost than keeping the mortgage and investing more in your 401(k). If you invest in your 401(k) instead, you don't have liquidity because withdrawals from a 401(k) are subject to penalty as well as the tax. Still, the liquidity is important: you shouldn't pay down a mortgage unless you keep an adequate emergency fund (which can be in a Roth IRA in which contributions can be withdrawn penalty-free).

#8-#10 are the points I usually make in forum discussions whether to pay off a mortgage or not. If keeping your mortgage allows you to get a 401(k) match (#8), or invest in bonds at a rate comparable to the after-tax rate on your mortgage (#9), or keep money liquid which you are likely to need (#10), then I recommend keeping it. (#9 is the reason I am still keeping mine). But with most mortgages non-deductible now, I often recommend paying a mortgage down.
Good points!
Jebediah wrote:
Wed Oct 23, 2019 8:30 pm
I think the #1 good reason not to carry a mortgage is that it's many thousands of dollars a year completely wasted on interest payments.
It isn't wasted, as the money not used to pay down the mortgage is earning some benefit for you. If your mortgage is 2% after tax and your bonds are yielding 2%, you pay and receive the same amount of interest. If your mortgage is 2.5% after tax and your bonds are yielding 2%, it may be worth paying that 0.5% for liquidity.
If you mortgage is 2% after tax and your bonds are yielding 2% after tax....

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by djpeteski » Thu Oct 24, 2019 11:00 am

JoeRetire wrote:
Wed Oct 23, 2019 8:03 pm
true: Reason #11 You’ll Never Get Rid Of Your Monthly Payment, No Matter How Hard You Try
I would say that #11, is at best, intellectually dishonest. T&I are such a small part of most locations total payment, assuming escrow, that it cannot be really called a monthly payment. For those of us, who went without escrow, while they had a mortgage. Paying an annual home owner's insurance premium or taxes is nothing new.

It is not clear, but it seems like he is advocating using an escrow service after the mortgage is paid off. To me, one can reduce risk and increase income by not using an escrow service.

There crux of the fallacy of this article is there is no talk of risk to the average consumer. As advocated in step 7, the housing market drops but you time it perfectly and refi. So now you have a mortgage that is 500K rather than the 200K when you bought. What happens if your household also experiences a 50% reduction (or more) in income?

That happened to us this year, it wasn't too painful as we have a paid for home (and everything else for that matter).

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by Quirkz » Thu Oct 24, 2019 11:27 am

smitcat wrote:
Thu Oct 24, 2019 10:19 am

- liquidity is king
Liquidity gets a ton of play on this site, but cashflow is nice to control, too, and that seems like it's barely ever recognized. I guess if you have enough liquidity maybe you don't care about cashflow, but if you reduce cashflow, you also don't need as much liquidity. Making a mortgage disappear - usually the largest monthly expense - frees up a lot of space in the budget for other options. Among other things, I feel like I have a deadline to pay off the house by the time the kids get to college age, so that I'll have more ability to tackle that.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by randomguy » Thu Oct 24, 2019 11:28 am

banjo wrote:
Thu Oct 24, 2019 9:36 am


The market doesn't have to be down for 30 years to force you out of your home. It only has to dip temporarily down far enough to make you miss payments. Witness the crash of '08 and how many people lost their homes.
Sure but think about how big of dip would be required for that to happen. You are talking like 75%+ for 5+ years. I.e. something that has never happened so far. People didn't lose their homes in 08 because they invested instead of paying off their mortgage. The lost their houses because they had no money in the first place.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by smitcat » Thu Oct 24, 2019 11:35 am

Quirkz wrote:
Thu Oct 24, 2019 11:27 am
smitcat wrote:
Thu Oct 24, 2019 10:19 am

- liquidity is king
Liquidity gets a ton of play on this site, but cashflow is nice to control, too, and that seems like it's barely ever recognized. I guess if you have enough liquidity maybe you don't care about cashflow, but if you reduce cashflow, you also don't need as much liquidity. Making a mortgage disappear - usually the largest monthly expense - frees up a lot of space in the budget for other options. Among other things, I feel like I have a deadline to pay off the house by the time the kids get to college age, so that I'll have more ability to tackle that.
My thoughts - once you have sufficient liquidity you then do the math to see if paying down a mortgage makes sense.
For the most part it has made more sense for us to keep mortgages over time - we could pay them down but the math did/does not favor it.
There is no more or less 'space' whether we pay the mortgage off today or not - just a journal entry that may or may not make best mathematical use of funds.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by unclescrooge » Thu Oct 24, 2019 11:40 am

banjo wrote:
Thu Oct 24, 2019 9:36 am
EddyB wrote:
Wed Oct 23, 2019 9:49 pm
banjo wrote:
Wed Oct 23, 2019 9:26 pm
Investing borrowed money. Investing on margin. The leverage works great when the market goes up. The leverage also works, but in a bad way, when the market goes down.
If you expect the market to be down for thirty years, it’s not investing the fixed-rate mortgage that’s going to be the problem.
The market doesn't have to be down for 30 years to force you out of your home. It only has to dip temporarily down far enough to make you miss payments. Witness the crash of '08 and how many people lost their homes.

There is more to a mortgage than just the interest rates. When you take out a mortgage, you sign a contract saying that the bank can take your home if you miss payments. You do not have to suffer through 30 years of downturn for that to happen. A short term downturn that is severe enough can snowball into the loss. After that, if the market goes back up for the next 20 years it doesn't matter much.

If you do not have a mortgage, there is no such contract and it is much more difficult for someone to evict you from your own home during bad financial times.

We are retired now and happily mortgage free.
People making$50k/year buying $750k homes with negatively amortizating sub prime loans were the majority of owners who lost their homes.

The problem wasn't the mortgage. It was buying something they couldn't afford.

Mortgages are a tool. The same as every other form of credit. And as with everything else, if you commit you a loan you can't afford you will end up worse off.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by SevenBridgesRoad » Thu Oct 24, 2019 11:46 am

EddyB wrote:
Thu Oct 24, 2019 9:15 am
SevenBridgesRoad wrote:
Thu Oct 24, 2019 1:03 am
Yawn. Same old argument, over and over and over, a thousand threads here. Same as it ever was: there are two camps. Since folks are weighing in yet again, I'm in the "mortgage paid off well before retirement" camp. This camp wears face paint telling the world, heck yeah, I sleep well at night. In bad times, I can drop my expenses like a rock and not worry about about paying a bank so I can live in my home.

I understand that the other camp sees things differently and I'm not trying to convert one team to the other (shameless Seinfeld reference).
I’m only trying to convince one person to explain the facts on which he’s basing his statements. My mortgage balance is something like 5% of my net worth, so it’s not something I see as a big factor either way.
So what you are saying is, out of the multitude of "Should I pay off my mortgage" threads here and the what must be hundreds of thousands of words posted and the hundreds of posters, you haven't found one person who explained the facts on which that person based their statement? That might mean that no explanation will ever make sense to you. That puts you firmly in the Don't Pay Off the Mortgage Camp and you have lots of company there. No concern of mine; not trying to convince you to change. Likewise, I'm in the Pay Off the Mortgage Camp and likewise have lots of company. Why should you care?
Retired 2018 age 61 | "Not using an alarm is one of the great glories of my life." Robert Greene

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by LongRoad » Thu Oct 24, 2019 11:47 am

X528 wrote:
Wed Oct 23, 2019 7:46 pm
11 Reasons to Carry a Big, Long Mortgage by Ric Edelman:

https://smartwithyourmoney.com/11-reaso ... -mortgage/

Is Ric Edelman right or wrong?
Some of his points are too incomplete or too incoherent to even be wrong.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by wolf359 » Thu Oct 24, 2019 11:48 am

Broken Man 1999 wrote:
Thu Oct 24, 2019 9:59 am
I think Edelman must have been wearing his Captain Obvious tee-shirt when he phoned this in.

Broken Man 1999
This is just the synopsis of a section of his book "The Truth About Money." I couldn't decide if this was a paid article in order to advertise the book, or if the blogger had simply made a synopsis of the book and credited it to Edelman. One marketing strategy is to publish a book to establish trust and authority, then use that to sell your financial advisory service. That may be what's happening here. That also may explain why this article is not completely coherent (it's out of context.)
You may have heard that it’s best to have the smallest mortgage you can and to pay it off as quickly as possible. Or perhaps you have heard to save up as much money as you can to throw it all at your down payment. Many people don’t fully understand the benefits of a mortgage, and there is a lot of misinformation about them. We highly recommend checking out financial guru Ric Edelman’s book The Truth About Money (link) where he explains these 11 reasons you should have as big and long of a mortgage as you can.

This is just a synopsis from Edelman’s book, be sure and check it out in it’s entirety here.(link)

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by banjo » Thu Oct 24, 2019 11:55 am

I did not mean to over-simplfy the question when I suggested that Ric's advice is bad. I think that Ric Edleman has oversimplified. The personal situations we find ourselves in can be rather complex, and we each need to do our own due diligence... not simply follow one-size-fits-all advice from the pundits.

For example, we bought our house in 1978 with a 25 year mortgage at 9 1/4% interest. We thought we had missed the boat with such a high interest rate. But then the interest rates continued to go up to >15% a few years later. Yay. We won. Not so fast. A few more years later interest rates started back down. What to do?

What I did was I ran the numbers myself. I figured that at the current return on $$$ in the bank and my mortgage interest rate, paying off the mortgage would save me about $60k in the long run (I was paying more interest than I was getting from the "investments"). We did not have any real investments back then, just the bank accounts and some CDs. If the rates went down further, I saved more; if they went back up it would cost me. Break-even was about 10%.

So we took a guess and paid off the mortgage at 12 years, and watched the interest rates continue to drop. It was a lucky guess. Also, part of the decision was based on the outrageous inflation back in the '80's. After the inflation was done with us, the amount left to pay on the house was the cost of an expensive car by the time we paid it off. It was a complex situation.

My point is that making a rule like "Take out the biggest mortgage you can get and never pay it off" can easily backfire if you follow it blindly.

The rule I would make is "Run the numbers yourself until you understand what the trade-offs are, and then make a decision yourself".

Oh, and the reason that we got the mortgage at all...... was because we were just starting out and did not have the money to buy a house.... which is the original purpose of a mortgage.... not as an investment vehicle.

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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by EddyB » Thu Oct 24, 2019 12:00 pm

SevenBridgesRoad wrote:
Thu Oct 24, 2019 11:46 am
EddyB wrote:
Thu Oct 24, 2019 9:15 am
SevenBridgesRoad wrote:
Thu Oct 24, 2019 1:03 am
Yawn. Same old argument, over and over and over, a thousand threads here. Same as it ever was: there are two camps. Since folks are weighing in yet again, I'm in the "mortgage paid off well before retirement" camp. This camp wears face paint telling the world, heck yeah, I sleep well at night. In bad times, I can drop my expenses like a rock and not worry about about paying a bank so I can live in my home.

I understand that the other camp sees things differently and I'm not trying to convert one team to the other (shameless Seinfeld reference).
I’m only trying to convince one person to explain the facts on which he’s basing his statements. My mortgage balance is something like 5% of my net worth, so it’s not something I see as a big factor either way.
So what you are saying is, out of the multitude of "Should I pay off my mortgage" threads here and the what must be hundreds of thousands of words posted and the hundreds of posters, you haven't found one person who explained the facts on which that person based their statement? That might mean that no explanation will ever make sense to you. That puts you firmly in the Don't Pay Off the Mortgage Camp and you have lots of company there. No concern of mine; not trying to convince you to change. Likewise, I'm in the Pay Off the Mortgage Camp and likewise have lots of company. Why should you care?
No, your premise is wrong. I meant one specific person, who hasn’t. I’m firmly in the “it depends on the actual numbers and other circumstances camp.”

PluckyDucky
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by PluckyDucky » Thu Oct 24, 2019 12:01 pm

nisiprius wrote:
Thu Oct 24, 2019 10:49 am
This is a thoroughly dishonest piece, full of spin, and a good reminder never to trust "advice" from an obviously interested party. Just to take one:

"Reason #7: Mortgages Allow You To Sell Without Selling."

This is a grotesque distortion. The only possible purpose for using that language is to deceive you by making things sound better--by avoiding unpleasant words like "borrow" and "debt"--even though they are accurate, and "sell" is inaccurate.

When you "sell" something, the person you sell it to then "owns" the thing. If you sell a share of a thing, the person owns a share of the thing. That person then becomes a financial participant, and is taking on the financial risks that go along with the thing that was sold.

For example, if you buy a condominium, from the point when you bought it, you have taken on that risk. If you paid $400,000, and the value of it falls $200,000, that loss is your loss. And a normal "sale" is irreversible. You can't go back to the condomium's original owner and say "Here's your condominium back, now give me my $400,000 back."

When you mortgage a house, the bank does not own the house. You do. What the bank owns is not your house, or a share in your house. The bank owns your debt. The bank owns a legal contract saying you owe the bank a certain number of dollars that must be paid back, with interest, in payments of specific numbers of dollars on specific dates. The bank does not participate, except in an indirect way, in the risk of the value of your house fluctuating. If you have a mortgage for $400,000 and the house is only worth $200,000, the bank does not say "well, that is tough luck on both of us." As far as the bank is concerned, you owe every dollar. Various provisions of the mortgage are there to assure that when you get the mortgage, you continue to bear all the risk, as far as possible, and the bank bears none of the risk, as far as possible.

So, no, a mortgage is not at all like "allowing you to sell without selling."

It is, of course, allowing you to borrow money without selling. It is debt, not a sale.

You may say "everyone knows this," but the point is that Edelman chose to use inaccurate language. He could have just as well have written "Mortgages allow you to borrow money without selling." Why didn't he? Because he wanted you not to think about borrowing or debt. My mother taught me that the essence of a lie is not literal truth or falsehood, it is the intention to deceive. So, in brief, Edelman is lying.

Don't take advice from liars.
I couldn't believe that point. Going an extra $300k into debt because why?

Free money everybody! Now invest it with me so I can take my juicy commissions!

Although, many states have anti-deficiency laws, so when the value goes down, you lose your job and can't pay, and bank forecloses. It really was free money.
Last edited by PluckyDucky on Thu Oct 24, 2019 12:03 pm, edited 1 time in total.

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ray.james
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by ray.james » Thu Oct 24, 2019 12:03 pm

A good number of reasons apply to our personal case and we are going to keep our mortgage for a while. We will refinance as opportunities present but these are our reasons:

1) We are young and our kids are young. Mortgage rate is at break even inflation rate/higher by 0.5%. We would rather prioritize Mega backdoor roth, 529 in addition to usual tax deferred opportunities.
2) One of the best and if not - cheapest inflation hedge available today. (not many <<none?>> countries have fixed rate for more than 10 years)
3) As long as do not spent money that is intended for paying down, disciplined investors can make more money.
4) We live in non-recourse state
5) Liquidity is quite important at my age and phase of life.
Last edited by ray.james on Thu Oct 24, 2019 4:27 pm, edited 1 time in total.
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SevenBridgesRoad
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by SevenBridgesRoad » Thu Oct 24, 2019 12:24 pm

EddyB wrote:
Thu Oct 24, 2019 12:00 pm
SevenBridgesRoad wrote:
Thu Oct 24, 2019 11:46 am
EddyB wrote:
Thu Oct 24, 2019 9:15 am
SevenBridgesRoad wrote:
Thu Oct 24, 2019 1:03 am
Yawn. Same old argument, over and over and over, a thousand threads here. Same as it ever was: there are two camps. Since folks are weighing in yet again, I'm in the "mortgage paid off well before retirement" camp. This camp wears face paint telling the world, heck yeah, I sleep well at night. In bad times, I can drop my expenses like a rock and not worry about about paying a bank so I can live in my home.

I understand that the other camp sees things differently and I'm not trying to convert one team to the other (shameless Seinfeld reference).
I’m only trying to convince one person to explain the facts on which he’s basing his statements. My mortgage balance is something like 5% of my net worth, so it’s not something I see as a big factor either way.
So what you are saying is, out of the multitude of "Should I pay off my mortgage" threads here and the what must be hundreds of thousands of words posted and the hundreds of posters, you haven't found one person who explained the facts on which that person based their statement? That might mean that no explanation will ever make sense to you. That puts you firmly in the Don't Pay Off the Mortgage Camp and you have lots of company there. No concern of mine; not trying to convince you to change. Likewise, I'm in the Pay Off the Mortgage Camp and likewise have lots of company. Why should you care?
No, your premise is wrong. I meant one specific person, who hasn’t. I’m firmly in the “it depends on the actual numbers and other circumstances camp.”
I like your Camp wording. Using your words, you are in the It Depends on the Actual Numbers and Other Circumstances Camp and that puts me in the It's Not About The Numbers and other Circumstances Camp. That might be the reason you have not found (and won't find) a numbers-based explanation that satisfies you.
Retired 2018 age 61 | "Not using an alarm is one of the great glories of my life." Robert Greene

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