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

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

Post by bryanm » Thu Oct 24, 2019 12:33 pm

ray.james wrote:
Thu Oct 24, 2019 12:03 pm
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)
This is my #1 reason. The 30 year fixed rate mortgage is an economic Frankenstein, caused by political influences. Theory indicates that we should take advantage of an opportunity that would, from a purely economic point of view, not exist.

Of course, I'm young and can rely on theory. Prior to retirement practicality will rule and I will have it payed one way or another.

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

Post by cashboy » Thu Oct 24, 2019 12:42 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?
yes

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

Post by JoeRetire » Thu Oct 24, 2019 12:46 pm

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.
LOL! How may of the people who lost their homes in 2008 had the money to pay off their mortgage?

If you have the money to pay off your mortgage, there is absolutely no reason to ever miss a payment.
Don't be a lemming.

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

Post by JoeRetire » Thu Oct 24, 2019 12:48 pm

rebellovw wrote:
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.
Where did the money come from to pay off your mortgage?
Don't be a lemming.

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

Post by JoeRetire » Thu Oct 24, 2019 12:49 pm

CurlyDave wrote:
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...
LOL!
Don't be a lemming.

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

Post by JoeRetire » Thu Oct 24, 2019 12:55 pm

djpeteski wrote:
Thu Oct 24, 2019 11:00 am
To me, one can reduce risk and increase income by not using an escrow service.
How would that reduce risk ad increase income?
Don't be a lemming.

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

Post by White Coat Investor » Thu Oct 24, 2019 12:56 pm

CurlyDave wrote:
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...
https://www.healthline.com/health/side- ... ing-ambien
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by banjo » Thu Oct 24, 2019 3:04 pm

JoeRetire wrote:
Thu Oct 24, 2019 12:46 pm
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.
LOL! How may of the people who lost their homes in 2008 had the money to pay off their mortgage?
They didn't. That was the problem.
If you have the money to pay off your mortgage, there is absolutely no reason to ever miss a payment.
I would agree with that. But you are assuming that there is still income and money in the bank when the downturn hits. People lost their jobs at the same time as their "portfolio" went into the tank. There are other bills to pay as well as the mortgage. I have been there and done that. We did not miss any mortgage payments because we didn't have a mortgage at the time. It took a lot of years to recover.

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

Post by Wiggums » Thu Oct 24, 2019 3:18 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?
My favorite part of the link. Make sure you check out Ric’s book.

You can’t take a few points and believe that this applies to everyone. Your situation is likely to be different than mine. You may choose to Be leveraged, and I may not.

Carry on friends, there are more questions in the inbox wait for a BH response...

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

Post by Helo80 » Thu Oct 24, 2019 3:21 pm

Ric Edelman buys up local weekend radio shilling his firm.

His advice is not 100% awful, but he does the typical CFP (not sure if he's even that) dancing about the stock market and what not. That being said, out of all of the charlatans on weekend radio, he seems the least sleazy in that he's not selling indexed annuities, whole life or other high commission products.

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

Post by jdb » Thu Oct 24, 2019 4:59 pm

rebellovw wrote:
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.
+1. Another reason why I’m happy paid off mortgage is that we no longer have mortgage company telling us what insurance coverage we need. We were able to drop expensive windstorm coverage on our house in South Florida, with the high deductibles it no longer made sense but mortgage company insisted. No longer have them to bother us. Good luck.

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

Post by saintsfan342000 » Thu Oct 24, 2019 9:27 pm

His reasons go up to 11.

Nonsense otherwise.

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

Post by grabiner » Thu Oct 24, 2019 9:34 pm

trueblueky wrote:
Thu Oct 24, 2019 10:57 am
grabiner wrote:
Wed Oct 23, 2019 8:53 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.
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....
This is fairly common if you have a deductible mortgage and aren't maxing out an IRA and 401(k). The current yield on Vanguard Long-Term Bond Index is 2.99%, and its 15-year duration is the same that you would get by paying down a 15-year mortgage.

It is less common for a taxable investment, unless you are in a very high tax bracket. Admiral shares of Vanguard Long-Term Tax-Exempt yield 1.94%, which is the after-tax return on paying down a 3.08% mortgage in a 37% bracket. (This isn't quite fair, as the mortgage has a longer duration.)

But it is true for me. 1.94% becomes 1.76% after my 8.2% state tax. My own mortgage is at 2.625% (paid lots of points to get that rate), which is 1.78% after 24% federal and 8.2% state tax. I have nine years left on the mortgage, so I would match the 6-year duration of Vanguard Long-Term Tax-Exempt if I paid the mortgage down to three years, which is as much as I could do without a large capital gain on stock sales. And at current rates, that is only break-even.
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by JoeRetire » Fri Oct 25, 2019 7:34 am

banjo wrote:
Thu Oct 24, 2019 3:04 pm
JoeRetire wrote:
Thu Oct 24, 2019 12:46 pm
If you have the money to pay off your mortgage, there is absolutely no reason to ever miss a payment.
I would agree with that. But you are assuming that there is still income and money in the bank when the downturn hits. People lost their jobs at the same time as their "portfolio" went into the tank. There are other bills to pay as well as the mortgage. I have been there and done that. We did not miss any mortgage payments because we didn't have a mortgage at the time. It took a lot of years to recover.
Instead of paying off your mortgage, if you save the "extra/payoff' money", then you will have it to make mortgage payments down the road should the need arise.

It's always nice to never have a mortgage and thus never have any mortgage payments. If you could do that by just waving your hands and shouting "payments be gone", that would be great. But paying off the mortgage means that the payoff money has to come from somewhere.
Don't be a lemming.

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

Post by djpeteski » Fri Oct 25, 2019 7:50 am

JoeRetire wrote:
Thu Oct 24, 2019 12:55 pm
djpeteski wrote:
Thu Oct 24, 2019 11:00 am
To me, one can reduce risk and increase income by not using an escrow service.
How would that reduce risk ad increase income?
It reduces risk as there is not someone else in charge of paying your bills. The person that is in charge of paying your property tax may be struggling to pay their own bills, and you are entrusting them to pay yours? After some horrible experiences with my first home and escrow I will never do so again.

It increases income in that the money you set aside for things like property tax can be put into a savings account. It can then be paid at the most advantageous time for you. In my state, paying property tax in November yields a 4% discount.

So my property tax money earns interest in my high yield savings account until November where I earn a discount. Trying to get an escrow service to do that is basically impossible.

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

Post by randomguy » Fri Oct 25, 2019 8:14 am

banjo wrote:
Thu Oct 24, 2019 3:04 pm
JoeRetire wrote:
Thu Oct 24, 2019 12:46 pm
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.
LOL! How may of the people who lost their homes in 2008 had the money to pay off their mortgage?
They didn't. That was the problem.
If you have the money to pay off your mortgage, there is absolutely no reason to ever miss a payment.
I would agree with that. But you are assuming that there is still income and money in the bank when the downturn hits. People lost their jobs at the same time as their "portfolio" went into the tank. There are other bills to pay as well as the mortgage. I have been there and done that. We did not miss any mortgage payments because we didn't have a mortgage at the time. It took a lot of years to recover.
Why wouldn't they have the money? Where did the money that would have gone to pay off the mortgage gone? Even if you lose 50% in the market crash, you still have plenty to pay the bills for years. We aren't talking about spending the money versus saving it. We are talking about if you are better off saving in a house or in an investment account. Historically investing has won out just about everytime in the past 70 years.

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

Post by smitcat » Fri Oct 25, 2019 8:17 am

randomguy wrote:
Fri Oct 25, 2019 8:14 am
banjo wrote:
Thu Oct 24, 2019 3:04 pm
JoeRetire wrote:
Thu Oct 24, 2019 12:46 pm
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.
LOL! How may of the people who lost their homes in 2008 had the money to pay off their mortgage?
They didn't. That was the problem.
If you have the money to pay off your mortgage, there is absolutely no reason to ever miss a payment.
I would agree with that. But you are assuming that there is still income and money in the bank when the downturn hits. People lost their jobs at the same time as their "portfolio" went into the tank. There are other bills to pay as well as the mortgage. I have been there and done that. We did not miss any mortgage payments because we didn't have a mortgage at the time. It took a lot of years to recover.
Why wouldn't they have the money? Where did the money that would have gone to pay off the mortgage gone? Even if you lose 50% in the market crash, you still have plenty to pay the bills for years. We aren't talking about spending the money versus saving it. We are talking about if you are better off saving in a house or in an investment account. Historically investing has won out just about everytime in the past 70 years.

'We aren't talking about spending the money versus saving it. We are talking about if you are better off saving in a house or in an investment account. Historically investing has won out just about everytime in the past 70 years."

+1 Yes exactly - this is cut and pasted from an above post in this thread….


"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....

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

Post by Gemini » Fri Oct 25, 2019 8:25 am

With the current low rates, would it be wise to pay more than 20% down on a jumbo mortgage?

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

Post by Harry Livermore » Fri Oct 25, 2019 8:36 am

It's an old debate, and I agree with fellow posters who identify this as a personal choice, dependent on a person's (couple's) circumstances, finances, and locality. Paradoxically, it seems to be an emotional, as well as logical, choice.
We are debt-free on our vacation rental property, and soon to be debt-free on our single family rental property. We will be debt-free on our primary residence before retirement. Yes, that's a lot of "capital" tied up in real estate. But I sleep at night.
Cheers

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

Post by Pilgprog » Fri Oct 25, 2019 9:44 am

“Paradoxically, it seems to be an emotional, as well as logical, choice.” Quoting the previous post.

Intensely so. I will never forget the immense joy we felt when 35 years ago we became DEBT FREE. And we have done just fine since. First major decision - confine our outflows (our “standard of living”) to well within our (at the time partially unemployed) inflows. Credit cards paid to zero each month. And we have kept it that way - Essentially debt free except for an occasional large purchase (vehicles, paid off within 12-24 months).

Remember the “dip” of 2008-2009? I was 80, and we were in the market going into it, with no debt, fully invested (excluding emergency cash), 100% stocks. Early in the dip (Mid 2008) we harvested capital gains, sat on the cash, and were back into 100% stocks by mid 2009, having adjusted much of the port to a lower cost basis.

I love to tell this, especially to our kids, not to boast but to lead from experience. It can be done, and here’s my proof.

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

Post by banjo » Fri Oct 25, 2019 10:07 am

When I paid off our mortgage, interest rates were headed down. I ran the numbers myself, and since the interest rates were going down, I came out >$60k ahead by paying off the mortgage if they continued to go down, which they did. That $60k went into our investments and grew. If i had continued to pay the mortgage over the next 13 years, the $60k would have gone to the bank; no growth for me.

This is one real-world example of a case where Ric Edelman's advice would have backfired. Hence the one-size-fits-all advice is poor advice.

Run the numbers yourself and make your own decision. Paint-by-numbers financial plans do not work.

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

Post by HEDGEFUNDIE » Fri Oct 25, 2019 10:17 am

banjo wrote:
Fri Oct 25, 2019 10:07 am
When I paid off our mortgage, interest rates were headed down. I ran the numbers myself, and since the interest rates were going down, I came out >$60k ahead by paying off the mortgage if they continued to go down, which they did. That $60k went into our investments and grew. If i had continued to pay the mortgage over the next 13 years, the $60k would have gone to the bank; no growth for me.

This is one real-world example of a case where Ric Edelman's advice would have backfired. Hence the one-size-fits-all advice is poor advice.

Run the numbers yourself and make your own decision. Paint-by-numbers financial plans do not work.
You could have refinanced and captured the benefits of the lower interest rate, while putting more money into investments simultaneously.

Sometimes paint-by-numbers is exactly what is called for.

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

Post by Jack FFR1846 » Fri Oct 25, 2019 10:29 am

#6 assumes not only inflation but also that you'll make more money as time goes by. My biggest income year remains 2005. Assumption doesn't hold for me. Fortunately, I paid off my mortgage in 2002.
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by Clever_Username » Fri Oct 25, 2019 10:47 am

Two of those are why I'm carrying a big mortgage on my new house. It's at 3.25% (great rate, long story I might not go into here) and I prefer the liquidity.

The rest I mostly don't see as reasons. I actively hate one of the reasons (sorry, Ric) : the tax advantage of the mortgage interest. In my view, that makes mortgages easier to afford, but isn't a reason to keep a mortgage on its own. I don't need to spend $1 to save thirty cents in taxes.
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by wootwoot » Fri Oct 25, 2019 11:55 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.
Housing markets going up or down is largely regional and there are many cities that have lost real estate value over the last 30 years. If you're able to pick out the which regions will go up and which will go down for the next 30 years please share the secret. Index investing provides diversification while investing in a home doesn't.

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

Post by smitcat » Fri Oct 25, 2019 12:01 pm

wootwoot wrote:
Fri Oct 25, 2019 11:55 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.
Housing markets going up or down is largely regional and there are many cities that have lost real estate value over the last 30 years. If you're able to pick out the which regions will go up and which will go down for the next 30 years please share the secret. Index investing provides diversification while investing in a home doesn't.
"Housing markets going up or down is largely regional and there are many cities that have lost real estate value over the last 30 years"
Do you happen to have a link for the list of where home prices have fallen over the past 30 years?

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

Post by csmath » Fri Oct 25, 2019 12:07 pm

wolf359 wrote:
Thu Oct 24, 2019 9:54 am
Source: (Math)
Nice citation, I chuckled.

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

Post by CurlyDave » Fri Oct 25, 2019 12:31 pm

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

...- 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....
Perversely enough, if you have paid down your mortgage and run into difficulty in a downturn, the mortgage holder has great incentive to foreclose. The remaining mortgage debt is less than the now-distressed value of the home and the bank will come out just fine. Your personal finances will be completely hosed.

OTOH, if you are upside-down and the mortgage holder can not recover the entire debt by selling the house, they will give you lots of chances to make reduced payments to keep your loan out of the non-performing category and simultaneously avoid a capital loss.

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

Post by EddyB » Fri Oct 25, 2019 12:56 pm

wootwoot wrote:
Fri Oct 25, 2019 11:55 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.
Housing markets going up or down is largely regional and there are many cities that have lost real estate value over the last 30 years. If you're able to pick out the which regions will go up and which will go down for the next 30 years please share the secret. Index investing provides diversification while investing in a home doesn't.
While potentially relevant to the decision to buy a house in a market, why do you think that's a factor in whether to carry a mortgage vs. paying it off? If anything, it sounds like another potential advantage to carrying a mortgage---in many states, if the house's value declined below the remaining mortgage balance, you could just walk away from the mortgage.

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

Post by Googliebear » Fri Oct 25, 2019 1:05 pm

The answer is obviously a personal opinion and here's mine.

If you buy a house with a "Big, Long Mortgage", you most likely will buy a house that cost way more (in upkeep, maintenance, taxes, renovations, life inflation, etc.) than just the P&I, which in turn drains your cash flow for future investing.

I'm curious if his points are still valid if the interest rates on homes are 17%? I think not. Big tax deduction sure, but who wants to give all that money to the bank so they could deduct it. But for sake of argument, I'll assume we're only talking fixed mortgages at today's prevailing rates. This would then pose the question, at what interest rate does it become bad?

Also, would I mortgage my free and clear house to invest, much less invest with someone who charges me fees? Nope

I'm not saying a mortgage is bad, but a big long drawn out mortgage certainly isn't good or financially wise.

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

Post by X528 » Fri Oct 25, 2019 1:16 pm

"Housing markets going up or down is largely regional and there are many cities that have lost real estate value over the last 30 years"
Do you happen to have a link for the list of where home prices have fallen over the past 30 years?


Detroit?

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

Post by ray.james » Fri Oct 25, 2019 2:10 pm

Googliebear wrote:
Fri Oct 25, 2019 1:05 pm

I'm curious if his points are still valid if the interest rates on homes are 17%? I think not. Big tax deduction sure, but who wants to give all that money to the bank so they could deduct it. But for sake of argument, I'll assume we're only talking fixed mortgages at today's prevailing rates. This would then pose the question, at what interest rate does it become bad?
Tax deduction is just cherry. The actual cake is net real rate. if inflation is 25%, that is absolutely killer rate to keep around. If it is just 2% like today, one shouldn't borrow at that rate in the first place. I think this is the key point one should consider in my view especially when young.
There is a secondary issue with investment vs paying off. For the same 17% rate, if one can invest in bonds at 18%, would you choose that or pay off mortgage? There is much more eternal discussion around here on this and I guess it will be never-ending. If there is any tax advantaged space like 401k/roth, I tilt to investments.
I do agree that using long mortgage to go beyond "one's means" is always a bad idea but my guess bogleheads usually account/self-aware of these.
Last edited by ray.james on Fri Oct 25, 2019 2:28 pm, edited 1 time in total.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

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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 » Fri Oct 25, 2019 2:12 pm

X528 wrote:
Fri Oct 25, 2019 1:16 pm
"Housing markets going up or down is largely regional and there are many cities that have lost real estate value over the last 30 years"
Do you happen to have a link for the list of where home prices have fallen over the past 30 years?


Detroit?
30 years - Even construction costs have kept up with inflation. While land prices drop compensated for increase in cost of construction, here is the real data from st. Louis fred. They are close to double.

https://fred.stlouisfed.org/series/DEXRSA
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

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

Post by Gnirk » Fri Oct 25, 2019 2:17 pm

We wanted to be debt-free long before retirement, so the house was paid off within two years of building it. Of course, this was before the low mortgage rates of the past years. Even after you get a tax deduction, you are still paying somebody interest.

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

Post by smitcat » Fri Oct 25, 2019 2:25 pm

CurlyDave wrote:
Fri Oct 25, 2019 12:31 pm
smitcat wrote:
Thu Oct 24, 2019 10:19 am

...- 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....
Perversely enough, if you have paid down your mortgage and run into difficulty in a downturn, the mortgage holder has great incentive to foreclose. The remaining mortgage debt is less than the now-distressed value of the home and the bank will come out just fine. Your personal finances will be completely hosed.

OTOH, if you are upside-down and the mortgage holder can not recover the entire debt by selling the house, they will give you lots of chances to make reduced payments to keep your loan out of the non-performing category and simultaneously avoid a capital loss.
Exactly what we have seen - plus the additional possibility that folks may live in a non recourse state.

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

Post by MrBobcat » Fri Oct 25, 2019 2:29 pm

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:
lol, sad but some truth to it. Reminds me of what happened to one of my dad's long-time friends. Had a paid for house in Seattle (moved there in the 60s), his broker convinced him he needed to make that equity "work" for him. He mortgaged his home to the hilt and put it in the market. This was just before the housing crisis/stock market crash. In hindsight I'm unsure which "him" the broker was referring to in making that equity work.

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

Post by randomguy » Fri Oct 25, 2019 6:56 pm

MrBobcat wrote:
Fri Oct 25, 2019 2:29 pm
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:
lol, sad but some truth to it. Reminds me of what happened to one of my dad's long-time friends. Had a paid for house in Seattle (moved there in the 60s), his broker convinced him he needed to make that equity "work" for him. He mortgaged his home to the hilt and put it in the market. This was just before the housing crisis/stock market crash. In hindsight I'm unsure which "him" the broker was referring to in making that equity work.
Lets see how that worked out

https://www.portfoliovisualizer.com/bac ... 0&total3=0

So he made 8k from the portfolio and about 17k from paying off the mortgage. Who wouldn't recommend a strategy that makes you something like 25% more money over 12 years? The guy that starts in 2009 doing this ends up with 180k of portfolio profit and that 18k from paying off. I.e. the person who took out the mortgage has 3x as much money as the debt adverse one. It should be mentioned that the 2000 guy does go broke in year 19 and the couple years right around it will be close (i.e 50k with 12 years left). Obviously this is a very simplistic evaluation. You can definitely lose money by investing but the odds are really stacked in your favor of coming out ahead. It should be pointed out how much holding a mortgage reduces risk over the investors lifetime. Think about that 2009 person. They now have 300k instead of 100k. Think what that allows them to do in retirement in terms of holding less risky portfolios. Over their life they might end up holding the same average risk but they were able to take the risk when they could handle it (i.e. plenty of time to adapt when your 10+ years from retirement) and derisk when they couldn't.

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

Post by JoeRetire » Sat Oct 26, 2019 12:11 pm

djpeteski wrote:
Fri Oct 25, 2019 7:50 am
JoeRetire wrote:
Thu Oct 24, 2019 12:55 pm
djpeteski wrote:
Thu Oct 24, 2019 11:00 am
To me, one can reduce risk and increase income by not using an escrow service.
How would that reduce risk ad increase income?
It reduces risk as there is not someone else in charge of paying your bills. The person that is in charge of paying your property tax may be struggling to pay their own bills, and you are entrusting them to pay yours?
LOL! This is a joke, right? What person do you put in charge of your escrow?
It increases income in that the money you set aside for things like property tax can be put into a savings account.
Got it. First you give away a bunch of your money, and then your income is increased.
In my state, paying property tax in November yields a 4% discount.
And if you had a mortgage, I guess you couldn't afford to pay your property taxes a few months early. Okay. I don't have that problem.
Don't be a lemming.

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

Post by Starchild » Sat Oct 26, 2019 10:22 pm

smitcat wrote:
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.
Here's some math for ya: It makes sense when I don't have to pay those leaches. It's my property beotch. Step off the lawn!!!

Xrayman69
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by Xrayman69 » Sat Oct 26, 2019 11:24 pm

On the same lines as this topic may I inquire about a possible scenario:

1.5M equity on home
1.4M retirement accounts
400k taxable account
350K cash or equivalent accounts (liquid with 5 days)

150k mortgage remaining at 3.5% 12 years left in home

Reliable and armature consulting income at 600K annually for last 5 years and stable business even during the Great Recession period where consulting portfolio income was around 450-500k. Variability in any business but confident about stablility even in a “downturn”.

Opportunity to purchase a 500K vacation property with rental income (Rental income would cover costs for maintaining vacation home and some of the mortgage but not the entire mortgage if borrowed 400k @3.5% 30 years. Not going to be a profit center.

Joy of the vacation home 15 weeks/weekends per year is the purpose with goal of eventual retirement home in about 10 years. Please no lectures about needs and wants.

What does group think about refinance home to get 400K out @3.5% (30 year term) and thus the mortgage would go fro. 150 +400 to 650k.

Vs

having to sell some taxable account equities (And pay capital gains) along with cash equivalent to raise the 500k to purchase vacation and retirement home outright.


In either case requires 500k. First situation borrow money at 3.5% and keep 300k of equities invested and not have to pay capital gains (20% on something like 50k in gains). Second scenario sell equities lose about 10k in taxes but save 3.5% interest on 400k.

Twinsfan10
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by Twinsfan10 » Sun Oct 27, 2019 6:47 am

Buying the most expensive house that you qualify for with a 30 year mortgage and a minimum down payment is a great way to get rich IF none of the following things happen.

1. Economic Downturn causing a loss in income
2. Health problems causing a loss in income and increased expenses
3. having kids causing a loss in income and increased expenses
4. getting laid off or anything else causing a loss in income
5. Economic downturn causing home prices to drop
6. Natural disaster (especially one not covered by insurance or having a high deductable like earthquake or flood)
7. Long time frame with home prices and income not rising.
8. Anything else that can raise expenses such as maintenance/upkeep on that large house or increases in property taxes to pay for whatever.


Your home investment is like any other investment. The more risk you take (ie bigger mortgage more leverage) the higher the possible gain if
everything goes your way BUT the bigger the loss if things don't go your way. Just because everyone knows that housing prices will always go up does
not mean that they always will.

blinx77
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Re: 11 Reasons to Carry a Big, Long Mortgage by Ric Edelman.

Post by blinx77 » Sun Oct 27, 2019 7:27 am

There is a big difference between (1) deciding to invest money instead of prepaying an existing fixed rate mortgage and (2) deciding to pull out more equity from your house when you are on pace to pay it down. Some may say mathematically it's the same thing but that's not how life works.

The advantage of a 30 year fixed-rate mortgage is you can buy a house at 30 and then slowly pay down the mortgage for 30 years and own your house free and clear in retirement. Having no debt in retirement reduces risk because your fixed monthly expenses are lower and so it can be easier to get by in lean times without spending too much investment principal. If you carry a mortgage into retirement, you will need a larger nest egg to have the same level of comfort. You will need to work longer and retire later to accomplish this, which for some people is fine and others is not.

Sure, you can also pull money out of your house, invest it and then use the proceeds to pay back the mortgage. But, let's be clear, 30 year mortgages are priced based on 10 year treasuries and not the equity market for a reason. If you could take out a mortgage and invest the proceeds in treasuries and make money, that would be risk free and a no brainer. But taking out a mortgage and investing in the stock market or commercial real estate involves taking risks, period. It is more logical to take risks when you are young (e.g., when you are 30 and buying your first house) then when you are old and planning to retire. It is more logical to de-risk when approaching retirement for the reasons set forth above. Taking out a 30 year mortgage when you are young and simply slowly paying it down over 30 years is a great way to accomplish both the risk-taking and reward-seeking strategies most optimal for the young and the risk-adverse and principal-protection strategies most optimal for the elderly.

Also, with respect to the size of the mortgage, the answer is to buy the most affordable house that suits your and your family's needs. That will lower your monthly expenses and give you more money to invest. (You can go separately invest in rental properties and take out debt to do so if you love residential real estate and mortgage debt as asset classes.) Spending money to make money is the right answer only in a a small number of situations.

Investing is a lot like playing poker. We all like to make money when we play poker, but one easy rule of thumb in poker is to try to make sure you survive to play another hand.

There are a lot of half-truths in that article. I don't think the author is completely off base, but I prefer full truths.

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

Post by smitcat » Sun Oct 27, 2019 7:51 am

Starchild wrote:
Sat Oct 26, 2019 10:22 pm
smitcat wrote:
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.
Here's some math for ya: It makes sense when I don't have to pay those leaches. It's my property beotch. Step off the lawn!!!
Did you pay cash and not take out a mortgage? How did the math work out?

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

Post by djpeteski » Wed Oct 30, 2019 5:54 am

JoeRetire wrote:
Sat Oct 26, 2019 12:11 pm
djpeteski wrote:
Fri Oct 25, 2019 7:50 am
It reduces risk as there is not someone else in charge of paying your bills. The person that is in charge of paying your property tax may be struggling to pay their own bills, and you are entrusting them to pay yours?
LOL! This is a joke, right? What person do you put in charge of your escrow?
[/quote]

No joke at all. Thankfully, your experiences with escrow were not the same as mine. When I bought my first home, which was a bit of a stretch, dramatic swings in escrow caused me to come close to missing a few payments. At the time, I thought that would also mean I would lose my house. Now I know better, but at the time the fear was very real.

The escrow company is in charge of collecting money from you, and paying your bills. Also they are in charge of collecting the proper amount to ensure that there is enough money to pay your bills. So yea, they are in charge of paying your property tax and home owner's insurance generally speaking.

When I purchased my second house, I went without escrow and my life was so much better. And it is better yet since my third home was purchased without mortgage and I own the second house free and clear. The subject article is just stupid.

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