The Money Mustache Community
Around the Internet => Antimustachian Wall of Shame and Comedy => Topic started by: cincystache on December 02, 2014, 07:13:16 PM
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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...
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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.
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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.
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I can't understand reason #7:
Reason #7: Mortgages allow you to sell without selling.
and then
Simply get a new mortgage, and pull the equity out of the house. It’s the same thing as selling, except that you don’t 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.
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I can't understand reason #7:
Reason #7: Mortgages allow you to sell without selling.
and then
Simply get a new mortgage, and pull the equity out of the house. It’s the same thing as selling, except that you don’t 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. :)
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I can't understand reason #7:
Reason #7: Mortgages allow you to sell without selling.
and then
Simply get a new mortgage, and pull the equity out of the house. It’s the same thing as selling, except that you don’t 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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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."
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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.
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Reason #10: Mortgages give you greater liquidity and flexibility.
This makes no sense. It's nearly the most illiquid and least flexible investment.
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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.
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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.
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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.
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Uggh. I don't even want to justify that nonsense with a response.