Author Topic: Why Having a Mortgage is a Great Idea!  (Read 4931 times)

cincystache

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Why Having a Mortgage is a Great Idea!
« on: December 02, 2014, 07:13:16 PM »
http://www.edelmanfinancial.com/education-center/articles/1/11-great-reasons-to-carry-a-big-long-mortgage

Came across this article, I don't even know where to begin with a counterargument...

gimp

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Re: Why Having a Mortgage is a Great Idea!
« Reply #1 on: December 02, 2014, 07:25:33 PM »
Reason #3: A mortgage is cheap money.
Reason #10: Mortgages give you greater liquidity and flexibility.

These are good reasons - excellent, in fact. The rest are not.

Taran Wanderer

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Re: Why Having a Mortgage is a Great Idea!
« Reply #2 on: December 02, 2014, 09:34:12 PM »
Interesting. Thanks for posting. I like reason #10 (liquidity), but if you can build liquidity in other ways, it does not apply as forcefully.  It's interesting to think about some of the unwritten assumptions in this piece, namely that a person with a mortgage will continue to work indefinitely and not aim for FIRE.

We have been aggressively paying down our mortgage over the last 2.5 years with a goal of getting to a more reasonable balance (and maybe refinance). Getting close now, and then we will have to decide whether to continue to pay it down, or to take the extra money each month and invest in a taxable index fund to bridge the gap between FIRE date and when we can draw from 401k or Roth accounts without penalty. This article gives me something to think about as I ponder that choice.

scottish

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Re: Why Having a Mortgage is a Great Idea!
« Reply #3 on: December 03, 2014, 07:56:10 PM »
I can't understand reason #7:

Quote
Reason #7: Mortgages allow you to sell without selling.
   

and then

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Simply get a new mortgage, and pull the equity out of the house. Itís the same thing as selling, except that you donít have to sell!

but you haven't sold anything.   In fact, if your house value decreases below the value of the mortgage your lender can foreclose, can she not?   And then you risk losing the whole house, not just having its value decline.

SwordGuy

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Re: Why Having a Mortgage is a Great Idea!
« Reply #4 on: December 03, 2014, 08:24:55 PM »
I can't understand reason #7:

Quote
Reason #7: Mortgages allow you to sell without selling.
   

and then

Quote
Simply get a new mortgage, and pull the equity out of the house. Itís the same thing as selling, except that you donít have to sell!

but you haven't sold anything.   In fact, if your house value decreases below the value of the mortgage your lender can foreclose, can she not?   And then you risk losing the whole house, not just having its value decline.

Let me see if I understand your concern.  I may have totally misunderstood you!

You buy a house worth $200,000 and we'll assume it's paid off.  You get a mortgage for $160,000 (80%).  The house drops in value to $100,000 and the bank forecloses.  They take $100,000 in value for the house and leave you with $160,000 in cash for that $100,000 house.
And the bank does this despite you being willing and able to pay your mortgage?

There are a host of people who would be singing "Free at Last!  Thank God Almighty, Free at Last!" if that happened to them and they wanted to sell but had been unable to do so.   

I don't think it's something to worry about.  The bank doesn't want your house, it wants your money.  :)



arebelspy

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Re: Why Having a Mortgage is a Great Idea!
« Reply #5 on: December 04, 2014, 01:46:48 PM »
I can't understand reason #7:

Quote
Reason #7: Mortgages allow you to sell without selling.
   

and then

Quote
Simply get a new mortgage, and pull the equity out of the house. Itís the same thing as selling, except that you donít have to sell!

but you haven't sold anything.   In fact, if your house value decreases below the value of the mortgage your lender can foreclose, can she not?   And then you risk losing the whole house, not just having its value decline.

No, she cannot.  If you make your payments, a lender cannot foreclose, regardless of the value of the home.
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SporeSpawn

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Re: Why Having a Mortgage is a Great Idea!
« Reply #6 on: December 04, 2014, 02:17:50 PM »
Reason #1 has nothing to do with why a mortgage is, in itself, good.
Reason #2 has nothing to do with why a mortgage is, in itself, good.
Reason #3 is fair enough, but there is cheaper money. For example, any money that is actual, you know, money.
Reason #4 is a nice fact about mortgage but not a gain. My charity deductions are tax-deductable. That doesn't mean they're great for my finances. In fact, they're terrible for them since they are a deduction.
Reason #5 is fair enough, but, again, there are better ways. Also, as it is interest, it, again, has nothing to do with why a mortgage is, in itself, good.
Reason #6 is Stockholm Syndrome. Really. How else am I suppose to describe "looking forward to being obligated to continuously pay an organization for an asset that I depend upon but will not have full control of for three decades"? This is health care or civilization, it's a damn building.
Reason #7 is a lie. We call that "taking out a loan." If I already owe someone 200k, in what will owing them an additional 300k be better?
Reason #8, so does Vanguard.
Reason #9, so does Vanguard.
Reason #10 gets a pass because some of my best friends are named Nick and Sam.
Reason #11 I originally thought was a sinister threat, but now I see is just whining that since I'm already going to drop 100/month or whatever on my house, I might as well drop 500/month. You're right Friend of Smart Sam! That's why, when the doctor tells me he's about to give me a shot, I say, "No, no Doc! I'm already having to get the toe sawed off. I might as well be awake for it."


gimp

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Re: Why Having a Mortgage is a Great Idea!
« Reply #7 on: December 04, 2014, 04:24:26 PM »
No, she cannot.  If you make your payments, a lender cannot foreclose, regardless of the value of the home.

Which is why mortgages for investment are much better than buying on margin for investment: no margin calls! As long as you can service the debt, you're in the clear.

Of course, not that the article is discussing investment mortgages.

eyePod

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Re: Why Having a Mortgage is a Great Idea!
« Reply #8 on: December 05, 2014, 12:47:00 PM »
Reason #10: Mortgages give you greater liquidity and flexibility.

This makes no sense. It's nearly the most illiquid and least flexible investment.

slugline

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Re: Why Having a Mortgage is a Great Idea!
« Reply #9 on: December 05, 2014, 01:11:58 PM »
Reason #10: Mortgages give you greater liquidity and flexibility.

This makes no sense. It's nearly the most illiquid and least flexible investment.

I thought it was the house itself that was illiquid and inflexible. Mortgages can be refinanced or even re-sold to a different lender without much fuss.
« Last Edit: December 05, 2014, 01:34:48 PM by slugline »

Chicken

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Re: Why Having a Mortgage is a Great Idea!
« Reply #10 on: December 05, 2014, 02:26:04 PM »
Reason #10: Mortgages give you greater liquidity and flexibility.

This makes no sense. It's nearly the most illiquid and least flexible investment.

Well it leaves you over all more liquid if you have a $200k mortgage and $200k paper assests v. $200k equity in your house.  It's a lot easier to sell a portion of stock than get equity out of a house.

arebelspy

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Re: Why Having a Mortgage is a Great Idea!
« Reply #11 on: December 05, 2014, 07:24:42 PM »
Reason #10: Mortgages give you greater liquidity and flexibility.

This makes no sense. It's nearly the most illiquid and least flexible investment.

The HOUSE is illiquid.  The mortgage lets you be liquid.

So if you have a 200k paid off house, or you have that same 200k house but with a mortgage for 160k and 40k equity and 160k portfolio (i.e. you could pay off the house), you are much more liquid with the mortgage.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
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Self-employed-swami

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Re: Why Having a Mortgage is a Great Idea!
« Reply #12 on: December 05, 2014, 07:33:10 PM »
Uggh.  I don't even want to justify that nonsense with a response.