Why many folks may not want to pay off their house ... BC they'll make more money.

[Phoenix]

Glad to hear it, and good for you CaseyLouLou.
As a young man I had the goal of living in a paid off house ASAP.
The downside of paying off your house never sunk in till someone explained it this way ...
OPM, or using Other People's Money to make money.

For example:
Invest $100,000 at 5% and you earn $5,000 in a year.
Or invest the same $100,000 (as 20% down on a $500,000 house) assuming that same 5% appreciation) and you earn $25,000.
80% of the money you earned was the result of using OPM, other people's money.

So, people who keep leveraging their wealth by using OPM are 5 times better off after one year.
Think of how that will compound over 40 years.

There's no comparison.
Maybe it's a left vs. right brain thing.
Some consider debt as a dirty but a necessary evil to be free of ASAP.
Others understand how to use debt wisely to get rich.
But hey, people vary - so their long term outcome will also vary.

Debt varies.
There is good debt and there is bad debt.

I don't disagree primarily with what you're saying, Kenny. I've fallen somewhere along the axis btw these 2 extremes, ie high geared vs totally paid off your mortgage(s). The majority of my assets/ wealth has been made leveraging my loans on property investments. However, in your example quoted above, you don't earn $25k on the $100k, cuz you have to pay interest on your mortgage to the lender. This is particularly so if you live in the property rather than rent it out.

I have a friend who's made a huge amount of money/built up her wealth by leveraging to the max. She enjoys debts cuz debts have helped her build tremendous wealth. She's used rental income to service her mortgages and over time, ie. 10-15-20 years, these properties have appreciated so much in value that she's benefitted from the huge capital appreciation in each and every one of them.

On the other hand, I have friends and relatives who have paid off their mortgages as soon as they could. To them, it's the peace of mind knowing that they'll always have a roof over their head, without fearing they're gonna lose their home/their biggest asset.

To me, this is more than just a dollar and cent issue. It's very much an emotional one too. Having that sense of security is priceless for some people. Also, managing a property is not stress-free and also it requires a lot of time and effort. You also need to buy the ppty at the right pricing. Buying something at the peak of the market may not serve you well. Some people may not have the time or simply the inclination to invest.

 

[Sunrises Sunsets]

Having purchased my first home when interest rates were at 7 percent, in 1998, I do kind of wish that I hadn’t rushed to pay off my home so that I could have capitalized on the 2 percent interest rates that were being offered at their low point!! Talk about healthy debt!!! So I can see why the article advocates for that. Sigh.

You could have remortgaged your home during that time period and played around with the money. But I know of a few people who are sweating this stock market and did what you wished you would have done. It's never a light decision to put one's security on the line but I know what you mean.

 

[Mrs_Strizzle]

I think diversify, diversify. We haven't paid off our house, but have other real estate investments. We do have money in the stock market but mostly in real estate. We are still in growth mode so paying off our mortgage is not an investment like paying off the others is. That said, when I'm ready to sell this 5 br house and downsize after my teenagers fly the nest, I will absolutely not carry a mortgage on my home for the piece of mind.

 

[monarch64]

Having survived 2008 (barely) but struggling for years to pay off debts I incurred I am buying an affordable (for me) condo outright. I drive a 2006 Toyota with 80k miles on it that was gifted to me by my parents several years ago when my paid-for Jeep passed away. I have no credit debt nor any other debt and I intend to keep it that way. Everything else is where it needs to be and that’s how it’s gonna stay. Kiddo’s college is already funded and she’ll receive inheritance. If it all fell apart, 50 acres of family land complete with bunker. My only cause for any concern now is trying to make sure I stay healthy as long as my daughter needs me. After that, it’s whatever—I’m 45, I’ve lived a LOT of life, still want to see and do a few more things, but I don’t feel the need to continue aggressively acquiring more more more. That’s just me, though. People really do vary.

 

[RunningwithScissors]

One important issue that the original article does not take into account is human nature. Often, people live to the edge of their means (meaning they spend their extra or flex money each month instead of saving or investing it.) For these people, and there are many of them, their homes become their financial nest egg -- paying a mortgage is forced savings. Advising them to NOT get a shorter term mortgage, or to NOT pay extra principle each month is not good advice. Yes, that money may have been better invested elsewhere if the interest rate on their mortgage is low, but for people who are not good at saving, paying off their house sooner is a much healthier option than spending the money on consumables.

I know it seems like "non-savers" by their very nature wouldn't pay off their mortgages faster than necessary. But life has shown me that they often do. Why that is, I don't know. Maybe its because their home is a concrete "object" they feel they are buying, versus buying stocks or bonds that they can't see or touch. Or maybe its some other emotional reason. But for whatever reason people do it, at least it is a pot of savings, when they often don't have many others. If they can't bring themselves to invest in a "normal" investment portfolio, then we shouldn't tell them to stop paying down their mortgages faster.

I remember reading somewhere, (I think it was in the WSJ?) that for the average homeowner in the USA, the equity in their home was their largest asset.

 

[RunningwithScissors]

Funny side note:

Talking about interest rates, I never thought I'd see the day when my general savings account at my bank has the same or higher interest rate as my mortgage! Crazy times we're living in!

My online bank savings rate: 2.25%
My 20 year mortgage rate: 2.5%

They'll soon cross over each other!

Bizarre!

 

[redwood66]

Some of the info in the article is incorrect or not explained well. Generally the 15 year loan is for a lower rate than a 30 year so the payments cannot be compared directly with one rate. In June we sold our home of 17 years in a crazy high market location to realize the absolute nuts equity gained over the past two years. We bought a new one elsewhere and close tomorrow having put 78% down with a 15 year loan. Wish we could have found something to pay cash outright but I am too picky and found nothing available for the amount to spend. Completely happy we did it and have a 5.375 rate. Yes we gave up a 3.375 but had grown to hate the property and house. We've been talking about selling for about 6 years. Glad we waited!

As to the thought of being a landlord, I know I do not have the patience so I'll forego that investment for something less stressful.