Buffet's Take on Paying Off a Mortgage

[Peter Parker]

Always nice to be in sync with Mr. Buffet...


https://www.msn.com/en-ca/money/topstories/why-one-of-the-worlds-richest-people-took-out-a-mortgage/ar-AAnNpRy

[NorthernBlitz]

I think that this makes sense.

To me, the big advantage of not having a mortgage is that you can increase your cash flow in the short term. I've read some posts here saying that they want to have their mortgage paid off when their kids go to university so they can help pay for tuition. In our case, one of the advantages of owning our home is that it allows my wife to stay home to take care of our children (freedom + elimination of child care expenses).

Since the market will probably deliver a higher return than the mortgage rate, that decision comes at the cost of wealth maximization more often than not.

I doubt that Mr. Buffet has an issue with cash flow, so I think it would make sense for him to have a mortgage. Although, it is worth noting that this article is about a mortgage on a vacation home. I wonder if he has a mortgage on his primary residence.

[slugline]

I couldn't help but notice Buffett's comment on how the America's 30-year fixed mortgages are a "one-way bet." I think the downside is that by making it "safe" this ends up increasing house prices for everyone. If the bet wasn't so one-sided, I believe that prices would be lower to compensate for risk that has been removed under the current system.

[Tyson]

To me it comes down to time horizon - if you are dealing with a timeline of more than 5 or 10 years, then the market is the way to go.  Less than 5 years and the market is pretty volatile and paying down the mortgage to eliminate a recurring cost becomes a lot more enticing. 

Me?  I've got 28 years left on my mortgage and all my extra $$ is going to the market (and 20% total bonds).

[Bicycle_B]

I couldn't help but notice Buffett's comment on how the America's 30-year fixed mortgages are a "one-way bet." I think the downside is that by making it "safe" this ends up increasing house prices for everyone. If the bet wasn't so one-sided, I believe that prices would be lower to compensate for risk that has been removed under the current system.

If risk were higher, wouldn't the price be higher?

[GU]

I couldn't help but notice Buffett's comment on how the America's 30-year fixed mortgages are a "one-way bet." I think the downside is that by making it "safe" this ends up increasing house prices for everyone. If the bet wasn't so one-sided, I believe that prices would be lower to compensate for risk that has been removed under the current system.

I don't think the ability to pay off one's mortgage early really drives up prices appreciably (though I'm willing to be proven wrong).  I would guess only about 10% - 20% of mortgagees really have enough money floating around to decide between paying off early or investing.  Don't get me wrong, the vast majority of mortgagees should be in that situation, but they waste money on stupid stuff. 

IMO, the two much larger factors that are artificially inflating home prices right now are:  (1) artificially low interest rates; and (2) approving loans with low down payments (e.g., 3%).  I read somewhere that the average downpayment on a home in America is 3.5% (I don't have time to search for it, please correct if wrong).  People's willingness to get in over their heads with housing debt is really pumping up housing prices.  A major cause of this is tying where your kid goes to school to where your kid lives, but that's a topic for another thread.

[I'm a red panda]

. Although, it is worth noting that this article is about a mortgage on a vacation home. I wonder if he has a mortgage on his primary residence.

He's lived there for so long, unless he continually refinanced to extend it, I doubt it.

[COEE]

I'm going to [respectfully] disagree with Buffett on this one.  I think the 30 year mortgage is one of the biggest lies that has been sold to the American people.  The problem with them is this: most people don't buy and hold their home.  They buy it and then 6-8 years move.  In 6-8 years, the principle of a 30 year 4.0% mortgage has barely moved... so you buy a new house with a 30 year 4.0% mortgage and guess what - you're perpetually in debt.  30 year mortgages only work if you buy and hold.

Example 1:
100k home, 20% down, 80k loan, 4%, 30 year loan, after 6 years you still owe $70,637.83.  You've only paid ~10% of your principle!

Example 2:
100k home, 20% down, 80k loan, 3.25%, 15 year loan, after 6 years you owe $52,576.32.  That's a big difference - and money that hopefully goes back into your pocket.  The worst that would happen is you have more flexibility to move if the market's tanked and you need to find a job somewhere else.  Best solution is your home value has gone up and you have saved yourself an extra $20k to put to the next house - and hopefully you'd eventually pay off a house someday.

And I agree that you'd probably do better if you borrowed the money on a 30 year loan and invested the difference in the 15 year loan.  The problem is that most Americans don't invest at all - forget about investing the extra of what you would have paid if you had gotten the 15 year mortgage.

[AdrianC]

Me?  I've got 28 years left on my mortgage and all my extra $$ is going to the market (and 20% total bonds).

Is your mortgage rate less than the yield on those bonds?

[Chris22]

I'm going to [respectfully] disagree with Buffett on this one.  I think the 30 year mortgage is one of the biggest lies that has been sold to the American people.  The problem with them is this: most people don't buy and hold their home.  They buy it and then 6-8 years move.  In 6-8 years, the principle of a 30 year 4.0% mortgage has barely moved... so you buy a new house with a 30 year 4.0% mortgage and guess what - you're perpetually in debt.  30 year mortgages only work if you buy and hold.

Example 1:
100k home, 20% down, 80k loan, 4%, 30 year loan, after 6 years you still owe $70,637.83.  You've only paid ~10% of your principle!

Example 2:
100k home, 20% down, 80k loan, 3.25%, 15 year loan, after 6 years you owe $52,576.32.  That's a big difference - and money that hopefully goes back into your pocket.  The worst that would happen is you have more flexibility to move if the market's tanked and you need to find a job somewhere else.  Best solution is your home value has gone up and you have saved yourself an extra $20k to put to the next house - and hopefully you'd eventually pay off a house someday.

And I agree that you'd probably do better if you borrowed the money on a 30 year loan and invested the difference in the 15 year loan.  The problem is that most Americans don't invest at all - forget about investing the extra of what you would have paid if you had gotten the 15 year mortgage.

You're ignoring the difference in payment.  In example 1, your payment is $382/mo, in example 2, your payment is $562/mo, which is 47% higher.  So you are correct you are $18k ahead in example 2, but you've also paid $13k more in those six years.  What would that $180/mo be worth to this hypothetical homeowner?  Hard to say.

[Tyson]

Me?  I've got 28 years left on my mortgage and all my extra $$ is going to the market (and 20% total bonds).

Is your mortgage rate less than the yield on those bonds?

It's not.  But I have job instability and I need bonds to be able to cash out if I'm out of work for more than a few months again.

[AdrianC]

Me?  I've got 28 years left on my mortgage and all my extra $$ is going to the market (and 20% total bonds).

Is your mortgage rate less than the yield on those bonds?

It's not.  But I have job instability and I need bonds to be able to cash out if I'm out of work for more than a few months again.

Yeah, that makes sense.

[seathink]

I'm going to [respectfully] disagree with Buffett on this one.  I think the 30 year mortgage is one of the biggest lies that has been sold to the American people.  The problem with them is this: most people don't buy and hold their home.  They buy it and then 6-8 years move.  In 6-8 years, the principle of a 30 year 4.0% mortgage has barely moved... so you buy a new house with a 30 year 4.0% mortgage and guess what - you're perpetually in debt.  30 year mortgages only work if you buy and hold.

Yup. And Buffet is the King of Buy and Hold. If you can do it, amazing. Average America can't, so the 15 year David Bach/Auto Millionaire plan works much better for money management - they can get more principle under their belt for the 6-8 year move.

[slugline]

I couldn't help but notice Buffett's comment on how the America's 30-year fixed mortgages are a "one-way bet." I think the downside is that by making it "safe" this ends up increasing house prices for everyone. If the bet wasn't so one-sided, I believe that prices would be lower to compensate for risk that has been removed under the current system.

If risk were higher, wouldn't the price be higher?

Most mortgages aren't held by the lenders that originate them; they end up being resold to Fannie Mae and Freddie Mac. So very soon after the ink is dried on the mortgage paperwork, the institutions that sold them have made keeping up with the borrower the government's problem. Without fear of default, lenders feel comfortable saying yes to larger loan amounts. More available money chasing the same housing inventory equals inflation of housing prices.

[MilesTeg]

I'm going to [respectfully] disagree with Buffett on this one.  I think the 30 year mortgage is one of the biggest lies that has been sold to the American people.  The problem with them is this: most people don't buy and hold their home.  They buy it and then 6-8 years move.  In 6-8 years, the principle of a 30 year 4.0% mortgage has barely moved... so you buy a new house with a 30 year 4.0% mortgage and guess what - you're perpetually in debt.  30 year mortgages only work if you buy and hold.

Example 1:
100k home, 20% down, 80k loan, 4%, 30 year loan, after 6 years you still owe $70,637.83.  You've only paid ~10% of your principle!

Example 2:
100k home, 20% down, 80k loan, 3.25%, 15 year loan, after 6 years you owe $52,576.32.  That's a big difference - and money that hopefully goes back into your pocket.  The worst that would happen is you have more flexibility to move if the market's tanked and you need to find a job somewhere else.  Best solution is your home value has gone up and you have saved yourself an extra $20k to put to the next house - and hopefully you'd eventually pay off a house someday.

And I agree that you'd probably do better if you borrowed the money on a 30 year loan and invested the difference in the 15 year loan.  The problem is that most Americans don't invest at all - forget about investing the extra of what you would have paid if you had gotten the 15 year mortgage.

You're ignoring the difference in payment.  In example 1, your payment is $382/mo, in example 2, your payment is $562/mo, which is 47% higher.  So you are correct you are $18k ahead in example 2, but you've also paid $13k more in those six years.  What would that $180/mo be worth to this hypothetical homeowner?  Hard to say.

Not to mention possible mortgage interest deduction(s). After six years you've paid about 14k on the 15 year mortgage vs 18k on the 30 year loan, leaving about 4k * your marginal rate in additional tax harvesting. That's another $400 to $1600 over 6 years that can be added to the payment difference. Not huge, but it all adds up.

[COEE]

I'm going to [respectfully] disagree with Buffett on this one.  I think the 30 year mortgage is one of the biggest lies that has been sold to the American people.  The problem with them is this: most people don't buy and hold their home.  They buy it and then 6-8 years move.  In 6-8 years, the principle of a 30 year 4.0% mortgage has barely moved... so you buy a new house with a 30 year 4.0% mortgage and guess what - you're perpetually in debt.  30 year mortgages only work if you buy and hold.

Example 1:
100k home, 20% down, 80k loan, 4%, 30 year loan, after 6 years you still owe $70,637.83.  You've only paid ~10% of your principle!

Example 2:
100k home, 20% down, 80k loan, 3.25%, 15 year loan, after 6 years you owe $52,576.32.  That's a big difference - and money that hopefully goes back into your pocket.  The worst that would happen is you have more flexibility to move if the market's tanked and you need to find a job somewhere else.  Best solution is your home value has gone up and you have saved yourself an extra $20k to put to the next house - and hopefully you'd eventually pay off a house someday.

And I agree that you'd probably do better if you borrowed the money on a 30 year loan and invested the difference in the 15 year loan.  The problem is that most Americans don't invest at all - forget about investing the extra of what you would have paid if you had gotten the 15 year mortgage.

You're ignoring the difference in payment.  In example 1, your payment is $382/mo, in example 2, your payment is $562/mo, which is 47% higher.  So you are correct you are $18k ahead in example 2, but you've also paid $13k more in those six years.  What would that $180/mo be worth to this hypothetical homeowner?  Hard to say.

Not to mention possible mortgage interest deduction(s). After six years you've paid about 14k on the 15 year mortgage vs 18k on the 30 year loan, leaving about 4k * your marginal rate in additional tax harvesting. That's another $400 to $1600 over 6 years that can be added to the payment difference. Not huge, but it all adds up.

These are really bad arguments to my point. 

@Chris22:  The point would be to buy a house that wouldn't cost you another $180 a month, but to stay within your budget and save the money.  You will get a smaller house with this approach... but you'll own your house someday.

@MilesTeg:  Interest deductions save you a bit.  But two things eat into this argument drastically interest over 15 or 30 years?  Also most people get between 15 and 25 CENTS back for every dollar spent in interest.  This does not build wealth - in fact it does the opposite.  And you only get the money back IF you can itemize deductions. 

I've also never understood why anyone would want to itemize deductions.  It's like a badge of honor.  When in fact, it's like bragging that you've wasted more than the standard deduction every year.  It just doesn't make sense to me.  Maybe someone can explain it to me.  If I'm married filing jointly and I can show that I've paid over $13,850k for taxes and junk, then I get 15 to 25 cents back for all of those things... If I only paid $7,000 on those things and I get to claim a $13,850 standard deduction, then I'm WAY ahead.

Maybe I'm missing something - and I'm open to the fact that maybe I'm missing something and am willing to learn more... but this is pretty easy math in my mind.  Maximize income, minimize spending - it's the mustachian way.

The point I am making is that most Americans are better off with a 15 year mortgage because it's eventually paid off in a reasonable time horizon and saves you SHIT tons of money.  I stand by that.

Edit to follow...

[Leisured]

Warren Buffet's point was that the money he might have used to buy the house was used to buy Berkshire Hathaway instead, which was a better use of his money. This point is valid for everyone in principle, but Buffet even in about 1971 was rich enough that the loan was not a problem. As banks say, they prefer to lend money to people who do not need the loan.

[AdrianC]

I've also never understood why anyone would want to itemize deductions.  It's like a badge of honor.  When in fact, it's like bragging that you've wasted more than the standard deduction every year.  It just doesn't make sense to me.  Maybe someone can explain it to me.  If I'm married filing jointly and I can show that I've paid over $13,850k for taxes and junk, then I get 15 to 25 cents back for all of those things... If I only paid $7,000 on those things and I get to claim a $13,850 standard deduction, then I'm WAY ahead.

Maybe I'm missing something - and I'm open to the fact that maybe I'm missing something and am willing to learn more... but this is pretty easy math in my mind.  Maximize income, minimize spending - it's the mustachian way.

You're missing charitable contributions, state taxes in a high tax state, property taxes.

We haven't had a mortgage in 10 years. We still itemize.

[AdrianC]

Warren Buffet's point was that the money he might have used to buy the house was used to buy Berkshire Hathaway instead, which was a better use of his money. This point is valid for everyone in principle, but Buffet even in about 1971 was rich enough that the loan was not a problem. As banks say, they prefer to lend money to people who do not need the loan.

This. If you have a better use for the money it's good to mortgage to the max. If you're already maxing out all possible retirement accounts and have an obscenely large stash of taxable investments and cash, I see no harm in paying down the mortgage.

[runewell]

I'm going to [respectfully] disagree with Buffett on this one.  I think the 30 year mortgage is one of the biggest lies that has been sold to the American people.  The problem with them is this: most people don't buy and hold their home. 

As someone else just pointed out, the point isn't whether the mortgage is held for 30 years.  The point is, when interest rates are low enough you will get a better return out of the stock market over that time period.  People are so obsessed whether they are going to pay another $10,000 in mortgage interest that they fail to ask whether they will end up with $100,000 in investment gains as a result. 

And nobody is forcing you to get a 30-yr mortgage each time you bought a house.  After several 30-yr mortgages I went with a 15-yr four years ago to get the lower interest rate (2.625%).  If you choose to continually take on 30-yr mortgages, clearly you want to keep as much of your cash flow free for something other than house payments.  If that $$ is getting long-term stock market returns great.  If that $$ is sucked up by a consumption lifestyle, well, you're on the wrong forum :)

[Chris22]

These are really bad arguments to my point. 

@Chris22:  The point would be to buy a house that wouldn't cost you another $180 a month, but to stay within your budget and save the money.  You will get a smaller house with this approach... but you'll own your house someday.

That's fine, but that's not the point you made.  Your original point was for a given mortgage how much farther ahead you'd be after 6 years.  If your actual point was to maintain the same payment but step down in amount borrowed, fine, but that's a completely different argument. 

I've also never understood why anyone would want to itemize deductions.  It's like a badge of honor.  When in fact, it's like bragging that you've wasted more than the standard deduction every year.  It just doesn't make sense to me.  Maybe someone can explain it to me.  If I'm married filing jointly and I can show that I've paid over $13,850k for taxes and junk, then I get 15 to 25 cents back for all of those things... If I only paid $7,000 on those things and I get to claim a $13,850 standard deduction, then I'm WAY ahead.

Maybe I'm missing something - and I'm open to the fact that maybe I'm missing something and am willing to learn more... but this is pretty easy math in my mind.  Maximize income, minimize spending - it's the mustachian way.

In this area, property taxes alone will get me more than half of the $13,850.  And that's not on a particularly fancy home; 1200sq ft and $350k.  And in any sort of reasonably HCOL area, it's easy to hit that number in mortgage interest in the first few years of a mortgage; $1300/mo of just P&I will get you there.  That's not an outrageous house in a lot of areas.

[SachaFiscal]

We have a pretty low interest rate on our mortgage. We ran the numbers a while ago and found that if we invested the money we'd be able to accumulate the amount of our mortgage plus the taxes for selling off the investments (on top of the money for FI) faster than if we payed extra on the mortgage to pay it off.  This is if our investments grow at 7%.  So we decided to just invest the money instead of paying extra on the mortgage.

[aceyou]

Couple rebuttles to this (even though I idolize Buffet).

-  His opportunity cost is higher, since he is literally the best investor in the world.  So, he can use extra cash far better than the typical american. 

-  It depends on the idea that you WILL invest all of the extra money that results from taking out the mortgage.  For the vast majority of americans, they won't do that, so the forced savings of home equity is important to many. 

So I guess on paper it's impossible to argue with him, but I think most americans would do well to pay their house off as fast as possible!

Kind of like even though on paper social security is a bad investment for every intelligent/dedicated investor, I'm glad that it exists because it's not good for rich people if there's millions of stupid starting elderly people because they didn't save...that's just bad for everyone. 

[retired?]

I'm going to [respectfully] disagree with Buffett on this one.  I think the 30 year mortgage is one of the biggest lies that has been sold to the American people.  The problem with them is this: most people don't buy and hold their home.  They buy it and then 6-8 years move.  In 6-8 years, the principle of a 30 year 4.0% mortgage has barely moved... so you buy a new house with a 30 year 4.0% mortgage and guess what - you're perpetually in debt.  30 year mortgages only work if you buy and hold.

Example 1:
100k home, 20% down, 80k loan, 4%, 30 year loan, after 6 years you still owe $70,637.83.  You've only paid ~10% of your principle!

Example 2:
100k home, 20% down, 80k loan, 3.25%, 15 year loan, after 6 years you owe $52,576.32.  That's a big difference - and money that hopefully goes back into your pocket.  The worst that would happen is you have more flexibility to move if the market's tanked and you need to find a job somewhere else.  Best solution is your home value has gone up and you have saved yourself an extra $20k to put to the next house - and hopefully you'd eventually pay off a house someday.

And I agree that you'd probably do better if you borrowed the money on a 30 year loan and invested the difference in the 15 year loan.  The problem is that most Americans don't invest at all - forget about investing the extra of what you would have paid if you had gotten the 15 year mortgage.

If you look at the UK, where prepayment of mortgages is not penalty free, people are much less likely to purchase in the first place.  The system in the US works.....don't necessarily need govt intervention, but it provides choices that would otherwise not exist.

[retired?]

personal note - I paid off our primary home for peace of mind.  But, I would likely use a mortgage in our next home depending on rates, tax rules, etc.

Nothing wrong with having a mortgage even if you can afford to not use one.  It's a matter of discipline, i.e. are you going to follow through on the assumptions you make in the analysis....e.g. investing that lump of cash, etc.

[runewell]

-  It depends on the idea that you WILL invest all of the extra money that results from taking out the mortgage.  For the vast majority of americans, they won't do that, so the forced savings of home equity is important to many. 

So I guess on paper it's impossible to argue with him, but I think most americans would do well to pay their house off as fast as possible!
 

Eventually those same Americans will be prompted by commercials to refinance and get their hands on that sweet equity so they can spend it. 
If you have to set the bar that low to justify paying down the mortgage, then that is exactly what the people on this forum should NOT being doing. 

[aceyou]

-  It depends on the idea that you WILL invest all of the extra money that results from taking out the mortgage.  For the vast majority of americans, they won't do that, so the forced savings of home equity is important to many. 

So I guess on paper it's impossible to argue with him, but I think most americans would do well to pay their house off as fast as possible!
 

Eventually those same Americans will be prompted by commercials to refinance and get their hands on that sweet equity so they can spend it. 
If you have to set the bar that low to justify paying down the mortgage, then that is exactly what the people on this forum should NOT being doing. 

Oh I hear ya.  I have 13 years left on my mortgage.  I could suspend all other investments and pay it off within 2-3 years, but there's no way in hell I'm going to do that.

Runewell, I've got a question back for you then.  Do you think people should not only take out a 30 year mortage, and then draw from the home equity periodically and invest that money into index funds?  And if so, is that something you do?  I mean, if we take it to the logical conclusion, if a 30-year note is better than paying it off quick, then an even better strategy may be to never allow equity to sit idly in your home, and keep diverting it to the market. 

[gggggg]

I paid mine off early, no regrets, I'd do it again in a second.

[Telecaster]

Couple rebuttles to this (even though I idolize Buffet).

-  His opportunity cost is higher, since he is literally the best investor in the world.  So, he can use extra cash far better than the typical american. 

Yes, but you can simply buy BRK and ride on his coat tails.  I do. 

[goateeman]

I paid my mortgage off 10 years ago... then refinanced and now have a 15 year mortgage, which I will pay the minimum to keep up.

Here's why:

1. reduced risk - when you have a mortgage, you spread the risk of devaluation of the asset to the financer (banks, lenders, etc) - say there is another recession or depression, if things get dire, and you need cash, or need to move, or get rid of the house, worst thing - do a short sale or foreclosure and walk away from the house.  If you have 100% equity on the house, and you need cash, or need to move, and don't have other cash available, you're screwed.  The bank gets to share the risk of the house devaluation while I pay them a historically low interest rate, on a non-calleable loan that is guaranteed at that rate forever.  Sounds pretty damn good to me.

2. greater flexibility - I have a lot more flexibility when my house is financed at such a low rate.  I can put the money to work for me, invest it, start a business, or keep a rainy day fund.  Nothing says I can't pay off my mortgage at any time should I wish, but it'll be my choice and no one else's choice.  If you choose to pay off your sweet low rate mortgage, you've made a 1 way decision that may be difficult to replicate in the future (especially if you're FIRE and have no income, or rates go up).

3. increased safety - when you have money in your pocket (figuratively speaking) that you got out of the house, should some emergency happen (major medical event, rare emergency, etc), you can use that money to take care of the emergency.  If your money is locked up in your paid off house, you can't easily get the cash out of your house to pay some urgent cancer fighting treatments to save a love one's life, etc...

4. more tax efficiency - if you are a high income earner, it is better to have the mortgage because the amount of taxes being reduced is a higher amount than someone who is a low income earner.  In addition, the mortgage makes your property tax, and other deductions much easier to be utilized.  If you live in a high property tax state, if you don't have a mortgage, your property tax alone may not be higher than the standard deduction, so property taxes may not help you reduce your taxes.  If you have the mortgage + property tax, you can deduct both items to reduce your income tax above and beyond the standard deduction, so a much more efficient use of the low rate mortgage to leverage your property tax as a deduction.

Basically, if you don't pay off the mortgage, and it's a super low rate loan, and you take the money to invest, or as a safety net  - provided you don't have a lot of other spare cash lying around (don't waste it), you're probably better off than those who choose to pay off their mortgage.

I took 60% of my mortgage funds and invested it.  I have 40% in short term laddered investments that I can pull in an emergency.  I sleep a hell of a lot better knowing that I'm more diversified than having all of my money in the house I sleep in (aside from my investments / 401k's, etc).

[talltexan]

I'm surprised to not being seeing more love for adjustable rate mortgages or interest-only mortgages on this thread.

My friend just bought a (horrifying) $750,000 house, but the interest-only payments on that are only $1,700/month or about double what mine are on a much more reasonable ($265,000) house. We both put 20% down.

[runewell]

Runewell, I've got a question back for you then.  Do you think people should not only take out a 30 year mortage, and then draw from the home equity periodically and invest that money into index funds?  And if so, is that something you do?  I mean, if we take it to the logical conclusion, if a 30-year note is better than paying it off quick, then an even better strategy may be to never allow equity to sit idly in your home, and keep diverting it to the market.

That is a GREAT point, I'm glad to see someone making it.  I have 11 years left on my mortgage and it will be paid off when I am 56.  At that point in my life, my time horizon and risk tolerance will be more diminished than it is now, so I should be more content with a lower return and less willing to do this.

Also, eventually interest rates and mortgage rates will go back up, and there will be less of a spread between mortgage rates and expected stock returns to want to even do that. 

But I think that prepaying a low interest mortgage (<4%) is a poor rate of return for anyone under 55 or so.  Each person is different, but again I think way too many people sacrifice huge amounts of eventual of wealth in order to avoid mortgage interest and debt. 

Corporations take on all sorts of debt all the time in order that they may make a better return in the market, so with low mortgage interest rates why wouldn't we do the same?

[eyePod]

I couldn't help but notice Buffett's comment on how the America's 30-year fixed mortgages are a "one-way bet." I think the downside is that by making it "safe" this ends up increasing house prices for everyone. If the bet wasn't so one-sided, I believe that prices would be lower to compensate for risk that has been removed under the current system.

They make a lot of their money at the time of transaction. Large volumes of closing costs.

[Giro]

I've also never understood why anyone would want to itemize deductions.  It's like a badge of honor.  When in fact, it's like bragging that you've wasted more than the standard deduction every year.  It just doesn't make sense to me.  Maybe someone can explain it to me.  If I'm married filing jointly and I can show that I've paid over $13,850k for taxes and junk, then I get 15 to 25 cents back for all of those things... If I only paid $7,000 on those things and I get to claim a $13,850 standard deduction, then I'm WAY ahead.

Maybe I'm missing something - and I'm open to the fact that maybe I'm missing something and am willing to learn more... but this is pretty easy math in my mind.  Maximize income, minimize spending - it's the mustachian way.

You're missing charitable contributions, state taxes in a high tax state, property taxes.

We haven't had a mortgage in 10 years. We still itemize.

We also have no mortgage but will itemize as long as we are both working full time.  State and local taxes alone are more than the standard deduction.  Either the OP has low income or lives in a no-tax state. 

[talltexan]

Corporations (and governments) can behave differently with regard to debt than personal households.

They are complex machines that can raise revenue through very robust and reliable ways, while individual households are mostly subject to the individual earning power of one or two people, who can die suddenly.

[GU]

I'm surprised to not being seeing more love for adjustable rate mortgages or interest-only mortgages on this thread.

My friend just bought a (horrifying) $750,000 house, but the interest-only payments on that are only $1,700/month or about double what mine are on a much more reasonable ($265,000) house. We both put 20% down.

And at the end of an IO loan, you owe the entire balance of the mortgage, whereas at the end of the fixed-rate, you own your house free and clear.  You only have enough to pay off your house in cash at the end of the IO loan if everything goes right (you actually invest the savings from your lower monthly payments, you get good returns, your investments are not down when the IO loan ends, you don't have a medical disaster that drains your wealth, etc.).  A lot can go wrong, and that makes an IO loan riskier.  Higher risk equals higher potential reward, but also a higher chance of failure.  TNSTAAFL. 

[teen persuasion]

We paid off our mortgage 15+ years early, but it was a high interest loan (9.75%).  Even with the high interest, and high property taxes, we were never able to itemize.

For low income earners, especially with children, lowering your fixed expenses by paying off the mortgage is much more useful by making it possible to get your AGI really low (maxing HSA and retirement accounts) to qualify for large refundable tax credits from both state and fed.

[Scortius]

We paid off our mortgage 15+ years early, but it was a high interest loan (9.75%).  Even with the high interest, and high property taxes, we were never able to itemize.

For low income earners, especially with children, lowering your fixed expenses by paying off the mortgage is much more useful by making it possible to get your AGI really low (maxing HSA and retirement accounts) to qualify for large refundable tax credits from both state and fed.

Paying off a 9.75% loan is a great investment.

if you assuming you have a mortgage at today's rates of 4% or lower then the second part is just wrong and people keep making this mistake.  People think of the period after the mortgage is paid off without considering the difference in expenses while the mortgage is still around.  If you're paying off the mortgage aggressively, you're not putting that money into the HSA in the first place.  If you're able to do both, you're still better off financially to not pay it off early.

Paying off the mortgage early forces people to put less money into tax advantaged accounts earlier on because they are using that money to pay off their mortgage early.  This holds even if you can't claim the itemized mortgage interest!  Further, low income people don't benefit as much from keeping their AGI income low.  You have to be doing pretty well before you hit the 25% bracket.

[Scortius]

Corporations (and governments) can behave differently with regard to debt than personal households.

They are complex machines that can raise revenue through very robust and reliable ways, while individual households are mostly subject to the individual earning power of one or two people, who can die suddenly.

Which is why you purchase a life insurance policy and buy a house well within your means.