![]() ![]() Option #2: Keep mortgagingĬonventional wisdom is to pay off debt, but rich people don’t get rich by following conventional wisdom they get rich by investing. If they had been putting their extra money into a savings or investment account they could have kept making payments, buying some time to sell the house. Did the bank care they made all those extra payments the past seven years? No, they just wanted their monthly check. Had permanent brain damage.Īfter he stopped getting paychecks they couldn’t make their mortgage payment. He lived, but was in the hospital for months. One day, on his way to work, he got into a terrible car accident. ![]() A couple was living in a $500,000 house and putting all their extra money into additional mortgage payments. The guy would brag, “Where else can you earn a guaranteed 4%?” And all your extra money went into the house. ![]() What if you lose your job, your spouse leaves you, they make changes to Social Security. The problem with this? The “known unknowns”. Merely citing an average is intellectually lazy. You could put your upper body in the oven and your lower body in the freezer and your body temp would be average but you wouldn’t be in very shape now would you. We very could easily have a few down years where you will lose money while the loan accrues more interest. Just because the average is 7% does NOT mean it will go up (at all) 7% on average for X number of years. You CANNOT say you are guaranteed a 7% return by investing in the stock market. Good advice would be saying: you are guaranteed a X% return if you pay down your debt. Then some guy comes along and says that’s bad advice. If you’re deciding between paying off debt, like a mortgage at 4%, or investing and getting a return of 7%, the better financial decision is invest. I always recommend doing whatever has the higher number. If we know that a house isn’t the best investment, what’s the rush in paying it off? Let’s take a look at your two options. Land is not a big component of home value in most places.” Land is getting more scarce, but the cost of construction is going down (due to mass production, etc.). “Yes, that is more or less right, in the past century or so. Over the same time period the S&P 500 returned 6.48%.Ī 6% difference didn’t seem right so I asked Shiller and he told me: Using Robert Shiller’s data I calculated the inflation-adjusted return on housing from 1890 through 2016 was 0.39%. This question - should you pay off your mortgage - is one of those debates where I’m not going to tell you what to do, but I’ll tell you how I think about it. Where is the best place to put your money: in a house, or investments?Īnd before you tell me your house is an investment, I’m going to tell you it’s not. I don’t care if they know or not, so I tell them I owe $100,000. That 1,000 square feet is good enough, and because I’ve lived here forever people ask me if it’s paid off. Why clean one sink when you can clean two?Īt some point I decided more doesn’t mean better. They buy a “starter home” before upgrading to vaulted ceilings, walk-in closets, and double vanities. I was going to live there five years or something like that. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |