Why Paying Off Your House Later Is A HUGE Risk
HTML-код
- Опубликовано: 28 май 2024
- 💵 Create Your Free Budget! Sign up for EveryDollar ⮕ ter.li/6h2c45
📱Download the Ramsey Network App ⮕ ter.li/ajeshj
🛒 Visit The Ramsey Store ⮕ ter.li/7vyom2
📞 Have a question for the show? Call 888-825-5225 weekdays from 2-5 pm ET or send us a message ter.li/n88ly5
Explore More Shows from Ramsey Network:
🎙️ The Ramsey Show ⮕ ter.li/ng9950
🍸 Smart Money Happy Hour ⮕ ter.li/9gcp3d
🧠 The Dr. John Delony Show ⮕ ter.li/2u3mc0
💰 George Kamel ⮕ ter.li/1elws8
💡 The Rachel Cruze Show ⮕ ter.li/n2u6jc
💼 The Ken Coleman Show - Highlights ⮕ ter.li/1rbjr2
📈 EntreLeadership ⮕ ter.li/ktxv2k
Ramsey Solutions Privacy Policy
www.ramseysolutions.com/compa...
My wife and I paid off our house in 2020 after putting together a financial plan in 2017 to reduce debt. We are 100 percent debt free. We didn't make any excuses, we had to pay off student and car loans as well. We are very grateful. Praise to God. Our house is valued at $700k. We are also black :-) so it is possible for anyone to achieve.
I am inspired, I love hearing about everyone's journeys. It is what keeps me going.
What does being black have to do with paying off debt?
@@bawags300_svt8 it has a lot cos most black people make excuses!!!
Best wishes in your brighter future :-)
@@bawags300_svt8 you wouldn't understand, but i will try to help you do so, in black culture, from a very young age we are taught to spend money on our shoes, clothes, cars so that we are acceptable to others and so that no ones looks down on us or thinks we are "poor". Sadly, spending so much on depreciating "assets" really just sets us for poverty in the future. This has been going on for generations, so many people of color are so worried about impressing others to our detriment
Mortgage paid off this Tuesday!! Best feeling of security ever! Shackles are gone.
Awesome Hippie, you are Winning at life.
Congratulations! Great job!
If you felt like you were wearing shackles because you had a mortgage, you're messed up.
@@boneyn3661 I am sure you are mentally just fine, going around and anonymously posting jabs. I am sure you have lots of friends and family that loves you.
@@gahippie2017 That wasn't a jab, it was my opinion. I won't stoop to your level and make childish judgemental comments like you did. Have a wonderful day, woman.
Paid off my house in 2019 sent my last payment in July my company I worked for went bankrupt in August. I was so happy to have made that last payment one month before.
Congratulations 😊 god bless you.
A very wealthy friend of mine told me this. He hasn't had a house payment since about 1995. He owns several homes, but has payed cash for all. He says it freed him to make investments, and feel safer about it. He's always commented if his business ever failed, he could work at Home Depot and not lose his homes.
That’s what people don’t realize or think about. We paid off our home just over a year ago, and have no other debt. Our total annual housing expenses(electric, gas, property tax, house insurance and water/sewer) if budgeting rather generously is around $8500. Our emergency fund takes this entire number into account, so with a total loss of income, we can easily maintain our housing for at least a full year without worry. The rest of our expenses can be easily adjusted to accommodate. We’re also just entering our later 30s….so it stands to reason that our income is also going to be increasing as time goes on. The difference now is that we’re not reliant on that increase in order to maintain our current lifestyle.
I am so grateful for a paid off mortgage. It really does feel great.
I’ve only recently stumbled across this guy and I’m at the 6th stage where I can start paying off my mortgage.
I had planned on seeing out the next 13 years paying it off but now that’s changed.
I’d never thought of paying it off early.
Bravo to you.🌈🌈🌈🌈🌈🌈🌈🌈🌈🌈
@@frankcardano4142 Happy for you!!! I never knew any of this when I was young. Glad I know it now, plan to have mine paid off in 2031 instead of 2051:)
@@pamwilliams6630
Thank you.
The crazy thing is I did know it after graduating with an economics degree 20 years ago.
I spent the time and money travelling and partying instead. 😂
If its fixed mortgage why pay it off earlier if inflation is your friend on your payments.
Paid off my mortgage in 5 years 😊.. I am 34, single mother of 2 teenagers.. thanks to god and me finding Dave Ramsey.. I am debt free 🎉🎉.. but I don’t have a car 😂.. building cash to get one in 2025💪🏽
Congratulations 🎉 I’m currently 30, have started paying more to my principal every month hope to have mine paid off by age 34 as well.
Eliminating all debt was the most liberating experience of my life. The peace of mind that it brings in a financially tumultuous world cannot be quantified.
Actually it can be quantified, but that would require you to understand math and realize how much opportunity you sacrificed by not leveraging debt that’s been nearly free to finance for decades.
@@yayano8415 - I find profiting on the debt of others much more satisfying and lucrative. What you say may be true theoretically, but very few can manage debt correctly in practice. Between the theory and reality lie profits. 🤑
Actually when you have a million dollars invested like I do you laugh at a moron paying off their stuff b 3% mortgage
@@profribasmat217 - enjoy your laughter and your good fortune!
@@yayano8415 Lmao, it’s hilarious how bad this advice is but seems to do something for these boomer masses that are bad at math.
If you feel a magical weight on your shoulders from having loans, and a relief from it being lifted. I guess sure spend that money for your mental health but a therapist might be cheaper. I feel like a chump not optimizing my money. Just the tax write off is huge for me based on my high marginal tax rate.
If you can afford to pay off your house you can afford to invest in highly liquid assets. Think what’s has a high chance of going to shit, your house or the best companies in the world? I feel so much more secure with money than with anything else. In case anything happens, I can take that money and flee. I can’t take a house and flee. Dollar in your pocket is worth 2 in a house.
Being debt free feels wonderful! Paid off house this week and no others debt! Just ordered Dave’s Baby Steps Millionaires. My husband and I feeling super motivated
Speaking as a man who's ex-wife was a debt maniac, your husband is lucky to have a woman that understands the importance of owing no money to anyone.
Congratulations!
But you will go back into debt when you want a bigger house or a nicer car.
@@crand20033 Not if he saves up first with the extra cash he now has from paying off his house.
Congrats!!! I cant understand how people can live in debt when the cost to just live is so high ie property taxes, maint and insurance, food, transportation, etc etc. I m with DR never want anything so much you are going to go into debt for it.,
My parents were forced to sell their home when in their 50's because of health issues. This was such a painful experience to watch, I paid off my mortgage against the advice of my financial advisor. That was such a good decision, no one knows the future.
Sorry to hear this about your parents. How are they doing now, and where did they live after selling their home?
Yes sorry to hear but you need a new financial advisor
Peace of mind is priceless - no debt is the best way to be
reading the comments it amazes me, though it really should not, how many people do not understand Dave is teaching financial peace, not math class.
That is actually a fair point. I don't take Dave's approach but when you put it that way I can understand why so many people need him. I know his program makes sense for some people.
I’m at financial peace with more money.
@@samuelfranklin4366 debt always equals less money and more risk
@@eatpigsnot nobody here is talking about just taking on debt and sitting on the cash. You seem lost.
@@samuelfranklin4366 my original comment was re: the comments section, and many commenters said they think borrowing at a low percent and investing at a high percent instead of paying off house is financially wise. it is painfully obvious that is financially moronic
One benefit paying off your mortgage gives you and it's hardly mentioned, is how you view your job. Feels great you don't really need your job that much , and you can tell your boss to do one, any time.
Now, that's a great feeling!
This.
That doesn’t make sense to me , if you pay off your house (we have) , you don’t need you job that much ? How so when you have taxes , need health insurance, pay your electric , gas , food . Not to mention it is best to put as much away as you can before retirement
@@annereynolds66 I said that much, meaning you still need to work. However if the boss is being unreasonable, you can push back more than you would have done before, and say no.
Compared to having a mortgage have no rent but some bills I can get any old job at minimum wage or less and I will be fine. With the mortgage / rent I don’t have the freedom and need a certain amount per month. For example.
Yes! This is the best part about it. When you dont have a mortgage or any kind of debt, you are free from other people telling you what to do.
I've paid off my mortgage got no debts.
Being 45 life just gets better No more monthly mortgage payments. The freedom
Feels amazing! I've had to listen to people
say why am I working so hard? You need to learn to relax and take a break.
It really did get to some people. I choose to ignore them and stay focused on my goals!
Getting advice from people who are dreaming of winning the lotto and are lazy.
Life is to short to gamble!
How much was your mortgage for?
Paid off mortgage and not looking back. Make a plan stick to it regardless of whatever happens. It feels like a huge weight lifted off. This is more encouragement to people who are looking at other ways.
*weight - there, fixed it for you
@@mikezerker6925
It does say weight
@@coasteyscoasteys4150 I think he fixed it… it said wait before… he (edited) his comment.
The way I look at it is like this: if I put more money towards my mortgage, it's literally GUARANTEED returns. You can't guarantee anything with the stock market. Yeah, my APR is only 3.125% on my mortgage, and right now for example even in Vanguard's Federal Money Market Fund, it's returning 5%. But it hasn't been like that forever. If I put more money toward my home, I'm literally guaranteeing I'm making more money. People don't view it as MAKING money, but that's what you're doing. If I was supposed to pay $100k in interest, and I only pay $50k, I literally *made* $50k.
I was about investing before mortgage. At 35, I was diagnosed with a severe debilitating disease and now I realize I won't be able to work till 65. So our lifestyle has been readjusted and our risk has been readjusted. Paying off the mortgage is now a priority over investing.
But you will still be obligated to pay taxes and insurance, maintenance, upgrades and repairs. If you had kids you will have to pay for college for them. Plus for any divorces that come up unexpectedly.
you should not think you are paying off your mortgage instead of investing. paying off your mortgage IS investing; in real estate.
@@crand20033 and if he had a mortgage, it'd be an even BIGGER monthly expense. Depending on where he lives, he may be exempt from paying taxes. And maintenance can sometimes be done by the homeowners or handy friends or family. At least their biggest monthly expense will be gone.
@@crand20033 divorces are expected.
You could always pull money out of your investments. You can’t, however, just go pull money out of your house or just sell it to get money to pay the bills…
Dave doesn't know what risk tolerance means. It's not subjective. There's an objective analysis that removes emotions and "freak out mode" out of it.
having no debt and a paid off house is an amazing feeling and I did it by age 50. Dave's tactics work, live w/in your means being the best one IMO.
I put 500k into stonks on 2019 instead of paying off my 400k mortgage. Today, I still have that mortgage, and my stock portfolio is almost 1.6 million.
Perfect example! Kudos
Why don't you pull money out of your house and invest it?
Let's see where you are 15 years from now vs the people with no mortgage
@@weirdnomad8868 i have became a multi millionaire since 2019. would it make u feel better if i went broke in 15 years? lol
For you that was the best decision. I had to make a similar decision two years ago when I sold my last rental property. Walked away with enough to pay off my personal mortgage but decided to invest instead. But that was my situation. Some people don’t have the tolerance for what I did and I understand that.
I sleep so great knowing my home is paid off!
So good z-z-z-z-z-z-z-z-z-z-z-z-z-z-z-z-z-z-z No mortgage -z-z-z-z-z
@@mikebingham9700😂😂😂
So many factors involved. I'm paying off mine this year simply because of the unknown. Losing a job, leaving a job that you hate to do something more enjoyable, coming down with bad health. I'd say the number one priority/achievement in a person's life would be having the roof over your head paid for. House paid for, car paid for....everything I make will be profit basically.
Except for property taxes, maintenance and utilities. But, that is much better than also having a mortgage for sure.
@@kbanghart Well yeah I've been paying all of that since day one..lol. Now I pay them MINUS the mortgage..lol. :)
@@marcusj97 why not just rent if the rent is about equal to the property tax? It’s as if you paid off a mortgage
@@zpt4862 how tf is rent the same amount as property taxes? Where tf do you live???
@@marcusj97 In Austin Tx. My friend in a 1500 sq foot home 3br/2bath pays 12k a year in property taxes. I live in an an apartment in the outskirts and pay 1100/month. Ok, so their property tax comes out to maybe $1200 cheaper over the year, but it is close enough! I invested the rest my money, they sink it into their house. My returns have been better.
Paying off the mortgage if you can is such a great feeling. The mortgage for 90% of us is our biggest debt. Get your debt gone and erased you are setting yourself up for success.
This is the best argument in favor of the pay-off-your-mortgage plan that Dave has presented on the air, from what I've seen. In previous conversations, the "beta" concept never was mentioned.
I think he usually doesn't go into it because the "math" is never what gets people to stick to the program. When it's "math" they just relapse.
He’s mentioned it before.
But people will still invest and hold on to that mortgage tightly lol.
He’s mentioned it a lot. But the average person doesn’t understand it. I had to Google it myself as I also have a monkey brain.
@@orphanedhanyou lol, when you use math, you make millions more. Dave is Rich but if I had had a successful radio show like him, I would be a multi billionaire already. When I am his age, I will be quite wealthy as well, way wealthier than I would be following his plan.
Common logic tells everything. Beta...... Id say is rather foreign !! Im 65.....never heard of it....and dont really care either. Basic math rules !
Life is uncertain, paying off my mortgage was guaranteed to give me less risk if I were to loose my income.
I cannot stand how Dave hates “good” debt. Why would I be in a rush to pay off 2.5% debt when I can put that extra money in VOO and get an average annual return of over 10%.
Yeah Dave its one size fits all and it works but if you have a little bit of self control there are more efficient ways.
RUclips search "Dave Ramsey why pay off debt if i can invest at a higher rate." several clips come up. really L I S T E N to those
Once you’re debt free you have more room to invest
Good advice Dave. I have many friends, coworkers, financial advisors etc who have preached the opposite for my entire adult life. They claim that leveraging everything possible vs paying cash when possible is the way to long-term wealth. I don't know a single person who's been disciplined enough with their finances and spending for this to work even marginally. Several have lost houses, claimed bankruptcy multiple times and will have to work until the day they die. My parents and grandparents lived through the great depression and instilled in me to live within my means, borrow money only when u have no other options and pay it off asap.
Anyone I know who is living financed to their neck in investments is almost always living beyond their means now and relying on their investments paying off later down the line.
If you keep refinancing because its 'tax efficient' as soon as your assets drop in value and banks start recalling loans it isn't long before everything is being sold in a fire sale.
I have several co-workers who are flat broke. They have car loans, 30-year mortgages, student loans, 401K loans, credit card debt, on and on. These are normal, hard working, intelligent folks who I rely on every day. It's almost unbelievable but typical normal behavior in America.
@@Weakeyedominant The key is to live within your means while also applying leverage where it makes sense. Credit cards and personal loans are not cost effective leverage vehicles. A mortgage is.
We are millionaires solely because of the debt we’ve taken on. If we saved up for each rental we have in cash we’d be no where near where we are now. We have 2 million in equity from our rentals and they make us 5k a month after mortgages, hoas, and maintenance costs are figured in. Debt is the reason we are millionaires
Bought a house in the uk for £140k after deposit and already paid off 20k. I earn 50k combined with my wife and we are looking to pay it off within the next 10 years. We are 23 and 25 doing good.
This is the answer on this topic I've wanted for a while now. Solid information, thank you Dave.
Did it! Thank you so much for your principals and guidance. It has changed my life not only financially but spiritually. 🙏🙏🙏❤
Dave really needs to stop oversimplifying. This was a fantastic description of the reasoning about paying off the mortgage, you don’t typically hear this part of his thinking. Let’s see more of this!
I could pay off my 1st home turned rental home this year, but it makes far better math sense to keep all that money invested (last year made 25%) than to pay off the debt which only costs 3% APR.
Paying off your home mortgage should ALWAYS take priority over investing! Change my mind.
Roughly 100% of homes which get repossessed have a mortgage or some sort of secured loan on it
Being a retired Marine fighter pilot, my risk tolerance is pretty good. I still like the quiet satisfaction of owing nothing to anyone. Investing is fun and interesting but it's good not to depend on the investments for anything.
That's odd because that's precisely why most people invest. They plan to depend on it. If you never need to use your investments then you likely have another source of income that you are depending on, like a job, pension, social security, spouse, etc.
It's not like paying off your house eliminates all of your expenses. That said, owning a paid off home is a great position to be in and every homeowner should strive for this. Our plan is to have ours paid off prior to retirement.
Your observation about having other sources of income is a sharp insight--we do. Remember the Great Depression? I don't either, but I can read about it. If there's another one its duration will probably exceed my remaining lifetime so I can't safely depend on most financial instruments. As for investments, I don't really trust them, although they're interesting to watch. We have good mutual funds with income reinvestment and make an adjustment every few years. As encouragement to your plans, I observe that we did OK with a normal middle-class life but didn't really clear all debt and get on the lower rung of wealth until the kids went off the payroll.@@TheFirstRealChewy
We paid off our mortgage a couple of years ago and as millennials we feel very blessed. Now with 0 debt of any kind and maxing out retirement accounts a year and saved up 2 year worth of emergency fund. Navigating the unknown high inflationary and recessionary environment gives us peace of mind which is priceless.
this is a basic concept taught in every finance 101 course at any college. sometimes we forget these concepts and forget to apply them after college. Thanks for the reminder course!
"Better than I deserve", so wise and humble answer at the same time. Loved it. I'll grab it :) Thanks sir!
Me too
Hey Dave - your millionaire study shows they paid off houses because at the time, mortgages were likely 6-12% at the time. Long term investment returns are likely 5-10% depending on risk, so one could achieve those returns risk free by paying off a home. It was the smart move - at the time.
But the math changes if your mortgage is locked in
Inflation will also lessen the weight of that debt. :!
He misses this so hard. My mortgage is 3.1% and I’m 28, I refuse to pay extra towards it. I’m full steam ahead on investing 20% of my income in investments
@@reaper-sz5tm mines 2.5% fixed
@@aaront936 ditto 2.75 fixed. It’s hard to justify paying extra when it’s the only thing not inflating 😹
I'm not a financial person but it seems to me that if you pay off your house early you then have a lot more money each month to invest. So we are going to pay off ours, have the peace that brings and add that house payment to the 15% we will be investing while we also pay off the house.
We've had no debt for years, and paid off our house a few years ago. We are MUCH happier now, investing our house payment plus more. Sure, there's a risk in mutual funds, but I don't have to worry about losing my house. I've been laid off a few times. So what? I just got another job. No worries about losing the house.
How does it feel to have the huge worry of being house poor.
@@DrSchor How am I house poor? I have no house payment.
What was your interest rate?
@@DrSchor The better question might be, "How does it feel to know if you lost your job today, you could do a reverse mortgage on your house and have cash flow for 20 or 30 years?"
I paid my mortgage off at 42. I still am worried most times.
I'm sad for you that you have this struggle.
If a person repeatedly reinforces the worry pathway in the brain
that worry pathway becomes stronger and becomes the automatic pathway the brain will take..
The process of not worrying but reframing the circumstances you are facing will take time and effort but it is so worth it to no longer be living in fear/ worry.
We are able to worry about so many things that truly don't matter unnecessarily making our lives more stressful and less joyful.
It is exercising your brain and building the proper neural pathways. Praying for you
@@amandah3205 awesome points. Thank you.
Good for you! 26k left here. I truly look look forward to being debt free.
Paying off your mortgage adds directly to your net worth. Then you have a massive asset and no debts. With NO PAYMENTs, now you can INVEST LIKE CRAZY = Further increasing your net worth. This is why Dave's plan works. I was doing things my way, then I did FPU with my wife, now we do it Dave's way. NET WORTH = ASSETS - DEBTS. Pay off your debts and you will have no payments which means you will have MONEY. I like Dave's plan, I like money.
Get out of debt even in high inflation which means everything costs more! So why keep payments around, only to have to keep making payments constantly while also paying MORE for EVERYTHING else too? Meanwhile, wages lag the inflation meaning you have less and less money at the end of each month. Getting out of debt is the sure way to financial success.
Paying off your mortgage has zero effect on your net worth. Your house has the same market value.
And you’ve now moved money from cash to cancel out your mortgage.
You may FEEL better, you may sleep better at night. But there is zero change in your net worth. ZERO
A paid off mortgage pays you monthly NOW, you don't have to wait until 59 1/2.
A paid off house pays you nothing. You can't eat a house.
@@aaront936 Nothing but your house payment, EVERY MONTH.
@@jaywalk6628 umm property taxes ???
@@carlostosado8965 Umm... property taxes are paid on top of a mortgage, kind of like you utilities.
I love finally hearing Dave defend this part of the baby steps
Yes I have to agree ... when I became 100% debt free my life changed dramatically , yes dramatically. I literally have nothing to worry about.
Except for death and taxes. 😞
@@bellmattwebb if your a Christian you think you go to heaven.
@@bellmattwebb well you don’t have to worry about death if…
@@bellmattwebb Why do you need to worry about death? Was you worried before your were born? The time after death is exactly the same as the time before birth.
@@savvageorge that's the problem with existing
Paying off you mortgage entirely reduces risk. Until you pay it off, any extra payments don't reduce risk that much.
So then don't make extra payments?
When Dave says "If you can't buy two of them you can't afford it" he didn't mean it literally when it comes to your mortgage. Heck, you'd be lucky to pay double your original loan amount after 30 years of interest.
What about a recast?
A friend of mine first paid his mortgage forward a year. As in if it’s May 2020 his next payment due date was May
2021. That was part of his emergency fund if he lost his job. Then they paid on the principle.
Those extra payments certainly lowered risk to an extent. Anyways. Just a anecdote.
@@Force5_Eye_Dev With most fixed-rate mortgages in the USA, extra payments only reduce the principal without reducing or postponing the next month's payment, so paying extra on the mortgage actually *increases* risk until the mortgage is paid off (because the extra cash thrown at the mortgage is unavailable for emergencies and doesn't reduce the monthly expenses).
Really appreciate your faithful and logical approach to finances, as articulated in this video.
Great video the true grind of it all.
Dave your wisdom about being debt-free is absolutely amazing you are absolutely right having a mortgage on your house as opposed to not having a mortgage on your house really affects your attitude about life. A person will have better health with no debt than a person with debt
having a paid off house is a good plan never know when you are going to have a job loss or a pay cut or a heath problem. when you house is paid off at least you have a place to stay itf every thing goes to crap
Great discussion.
Dave laughing was the best part 🤣🤣🤣
That was funny 1:30 mark.I never seen Dave Ramsey laugh so hard.
It depends on your mortgage rate is. I owe 100k on my house @ 3.1%. Instead of paying off the mortgage I put the 100k in a high yield savings @ 3.75%. Now if something comes up I still have the cash to deal with it and My mortgage is now 0% and Im making .65% on the cash.
Wow. Mind blowing teaching
Typically he explains things so regular people understand it. But his inner genius just peaked out and just showed he could mathematically explain his methods. I love it!
Except, he is wrong and the data ge uses to support his conclusions based on a correlation not causation.
Except he made up the math. His assignment of a high Beta to a mortgage is arbitrary. In reality a fixed rate mortgage has ZERO volatility so should be assigned a low Beta.
I'm glad I made a right decision to pay off my mortgage early and vehicle. We are debt free. I am thankful to God for giving us a reasonable heart to be wise in how he entrusted this blessings. I think we just need to be intentional to pay off our debts. My husband is retire now and have income. Plus we have huge savings I can't divulge it. I migrated from Philippines 28 years ago.
Intentionality is the key! I’m working on this right now and can’t wait to be 100% completely debt free in just under two more years, Lord willing!
It is about time Dave Ramsey made some sense. Great job and great explanation of your beliefs and mathematical conclusions.
Thank you for that explanation. It makes so much sense plus it parallels the concept of percentages you've talked about. It's all about risk. I'm on baby step 2 with a projection of being free of all debt except my home by December 2024 or sooner. All my life I've lived in fear, and now I know it's because of my finances. It's because I never owned a home that was within 25% of my income. I used debt instead of cash for repairs and upgrades. I had cars loans because of course I couldn't afford a car, even a used one. I had savings accounts that I put money in at the beginning of the month and took most of the money out at the end of the month. Investing for retirement was minimal or non existent. I couldn't understand how to actually spend less than I made. These are simple concepts, but they eluded me until I began practicing the Ramsey solutions. Thank you for what you do. I don't know if I will make it to baby step millionaire but today, as a 71 year old, I have hope.
Paying down the mortgage is a risk free rate of return (obviously most mortgage rates right now are well below CPI), but also remember that to pay the mortgage you have to earn the dollar, pay tax and then pay the mortgage. So in many respects expense avoidance can often times be mathematically underrated by people.
As in business, all cost savings directly improve the bottom line.
just dead equity
Yes, lowering your expenses will make a greater difference than increasing your income. The question is how low can you go.
I’m so glad we paid off all our debt including our mortgage. My wife and I are high income earners. We have so many choices now.
That’s the best video about paying off your mortgage vs investing I have seen 👍🏻
This was really good to hear. He is looking at his mortgage that probably has a 4-5% interest rate and looking at his investments that are making 8-12% and he can't understand why to pay off the mortgage first. Dave is saying that you need to apply a significant multiplier to the mortgage debt beyond the interest rate. Thats the risk factor.
Wife and i paid off our mortgage back in 2006 just before both of us turned 40 years old. Best decision of our lives. The things we have been able to invest in both 401K's and condo's for rental / passive income / a place to vacation, has really helped us set ourselves up for an early retirement (which means we will still work but fun jobs not jobs that we have to work) . I like to say, We (my wife and I ) never really have to worry about money or the things we want to purchase in life ,,,,because we are always worrying about money and the things, we would like to purchase....lol ... We have always lived well within our means which affords us at times to really enjoy life and take advantage of opportunities when they present themselves.
We decided to pay off our mortgage as we were getting close to retirement, about two years down the road. At the time, I was putting 15% into my 401K, while paying extra principal every month. We pulled money out of my IRA to do the payoff, 20 years into the 30 year mortgage. Then I began 20% into the 401K. Life became easier and less stressful and we retired and enjoying life. Debt is a given in life, but getting rid of it gives you a lot of life.
Why did you take money out of your IRA?
You should calculate the hundreds of thousands of dollars you missed out.
If you can put 20% down and get a 2.5% interest rate on a thirty year with zero points, you shouldn't be paying off that mortgage with all of the tax benefits etc. Banks won't let you lever up as much as they used to.
We have three years from house being paid off...just can not wait.
Dave knows that if you qualified for the loan, you can assuredly cut out bad habits from your finances and pay that sucker off sooner than later. Then you can do whatever you like with the money. It's not complicated.
They call it risk adjustment. So in a nutshell, it really depends in your risk tolerance.
This is good stuff. Specially the spiritual part near the end.
I don't find Ramsey's argument persuasive and their he nor this lady are giving the caller credit for how rational his question is. He asks, but I'm not still not hearing the math from them.
If I paid off my house I'd probably quit my big corporate job and work part-time and travel more, so my contributions to my 401K would go way down. I know myself, the mortgage motivates me. So I keep working, pay my reasonable mortgage and bank money. I have comfort knowing if I had to, I have enough equity I could sell my current high value South Florida house and downsize to a condo or move to NC and pay cash.
sounds like you can have a better quality of life and peace of mind but choosing not to have it, weird
I am a low risk tolerant person and I am a poor investor. Very true Dave. One good thing for me…I’m throwing a lot of money towards my mortgage principal at this point in my life to pay it off as soon as I can. I even hate to look at my 401k statement. 😮 Mutual funds? Oh dear. I’m ashamed to say that I don’t even know what those are. 😟
Do you have an internet connection? Apparently you do. Use it it to study some basic personal finance. It requires pretty basic math and isn't rocket science.
Paying off your home is dumb:
The S&P 500 has averaged 10.2% over the past 5 years and 9.1% over the past 150 years. If you did not pay off your home and had the cash in the market instead, even if you were stuck with today's mortgage rates, you would still be making enough to pay your interest payment AND an additional 4% profit.
With the average house in the US ($434K) and a 20% down mortgage you would make more than $400K profit over the interest payment during the 30 year life of the loan vs buying the house for cash.
@@richardjohnson8114 'Paying off your home is dumb'.....this is the dumbest thing I have ever read!
You can throw all the numbers around you want to try to make people think you are smart, but with just that statement, I know you aren't smart.
Would you borrow the max against your house to invest it?
Do not listen to Mr. Money above.....keep paying your mortgage down as fast as you can....you'll thank yourself when you are done.
@@formula112967 You'll thank yourself only because you can't do the math to show how much you've lost by not investing that same money in an S&P500 index fund.
@richardjohnson8114 what's wrong w paying off the house, so you clear yourself of the payment then invest the principal into the S&P 500? Obviously, one will always have the property tax and insurance payments, but why keep the principal payment?
Not financial advice but understand the time value of money and don't blindly trust anyone.
This was the best question I’ve heard to date. Been listening to these for a year or so. You have given an academic way to explain what I have struggled to come to terms with personally. This just makes every piece of sense! I needed this video. Thank you Dave for all you help educate on. I appreciate the lack of vilification with those who have a different view as well. You are humble from everything I have seen
Finish pay my house this month, best feeling in the world, peace of mind dont have a price and i pay for it in only 12 years,thank you for yor advice.
I’ve always believed the objective in financial planning is to ensure you meet your needs going forward. So that when you reach retirement you have enough to meet your needs. That strategy has helped me avoid pie in the sky get rich quick schemes. Slow and steady wins the race. The problem for me focusing too heavily on high risk, is that the outcome is not focused on simply needs, but rather more than I need, and as a result runs the risk of leaving me with less than I need.
I’m now retired for four years, debt free and happen to have more than I need, but that’s okay.
A paid off house doesn't mean you can retire. It just means you need less in order to retire.
@@andrewmarusic1975 It also means you have less invested to provide retirement income than you otherwise would.
@@richardjohnson8114 That's why it's important to prioritize your needs. Once you have enough money invested to cover your needs, then reducing low interest debt becomes more valuable.
This is the Math Our house is paid for and so are our vehicles. It was nice when My husband got laid off not to have to worry about those two extra bills. He could get a lower-paying job temporarily and still get our main bills covered until tides turned and they did. It was a massive weight off our shoulders. There is your MATH !!!
Nope look at RUclipsrs that increase their income 5X or 10X. Their math is likely even better. It just depends on what does/doesn't happen.
The number one way to become wealthy is to increase your income and keep your expenses low. Period. Work on building your value to the marketplace and run with it.
I’ve been losing a lot on mutual funds as well. Hopefully I don’t stop to zero and it comes back up soon
Ivan I'm in the same situation as you and so many people holding my breath about losing with mutual funds - want to get out but advisors insist hang on this rocky times we are in shall pass!
I love this Beta maths theory being applied to debt
Thanks Dave this was new to me
great answer
Awesome question and I love the way the caller approached it! I'm in the same boat and have been wondering the same thing - if I should keep my investments past when i could pay off the house and have a mortgage and investments or shovel my investments at the house and have no mortgage, but also no lump of money to continue the investment 'snowball'.
moderation in all things. do both at the same time.
I don't care if I "could" make more on investing. Paying off the home gives you peace of mind that investing cannot. Plus, with the money you save from making payments, you can invest it.
A paid off family mortgage in 2019 wasn't the best financial decision mathematically, but even knowing that I can say I made the right choice because of the clarity of thinking it gives you during every subsequent financial decision.
One of my clients lost 4x his salary in the market last year
Great question. I’ve always wondered why he always advocates paying of your house as a priority over investing
If loss job and mortgage is high can loss the asset the house. It's smart to pay off the mortgage..
He doesn’t. Investing comes first in the Steps. If you only have money to do one thing, it would be to invest. Paying down the house comes after that but both need to be done for retirement
I believe this is the best answer that Dave ever gave on this issue. Finally mathematically he could argue that paying off your house is better than not.
It's not. His beta argument is a fantasy.
But he didn't actually. He arbitrarily said that a mortgage has a higher Beta than mutual funds. In reality a fixed rate mortgage has zero volatility and thus a low Beta. At the end of the day paying off your mortgage is 100% emotional. If you are a reasonably disciplined investor it doesn't make mathematical sense.
@@richardjohnson8114 With the market making "corrections" with relatively long recovery periods, what does one do at retirement age when the market is down?
@@warrencusick1140 You keep 2 to 3 years living expenses in cash or t-bills. When the market is down you live off the cash so that you don't have to sell stocks when they are down. When the market is up you refill the cash buffer. As a note the S&P 500 is up 5.1% YTD and has a 5 year CAGR of 8.75%
As with all stages of life, it's important to set a budget and live within it, even when the market is up so that you have the reserves for when the market is down
@warrencusick1140 if you are taking distributions from your investments/retirement accounts or close to beginning then I would take a look at an annuity. Annuity performance is linked to interest rates and you can get lifetime withdrawals at a 6% or even better draw down guaranteed vs the 4% your stock broker would suggest. You also get benefits of market linked returns without the downside.
Yeah purely by the numbers investing over paying off a mortgage likely gets you further ahead. However knowing that where you lay your head doesnt belong to a bank is worth the tradeoff in my opinion.
Mathematically paying off your mortgage would only make sense if your interest are very high
I think it makes sense to pay off mortgage first with current int rates
It depends on what the mortgage interest rate is. If you are locked at 2.5% then it pays to save your cash and invest in a diversified growth stock fund that will yield between 7% and 12%. If however your mortgage interest rate is 7% then yeah I would pay off the house. Dave says that the fastest way to wealth is to pay off your mortgage, but if are at low mortgage rate then the math says otherwise.
Dave addresses that in another video. Mathmatically you are correct but people are not machines. When you have no house payment it changes your mindset in a significant way. Also leveraging has risks, if the stock market goes down and I'm desperate for cash then I'm screwed since I'll have to sell my stock at a loss. If the economy tanks and my house is paid off then I'm sitting in my recliner watching Netflix while all the people who just got laid off are freaking out
Being on my 50s and playing catch up on my retirement savings, I will stick to my target of paying off the house by the time I retire while investing as much as I can now. Time is not on my side...
Finally someone that’s a boomer, speaking true sound advise. Thank you sir!
@@JamesCook76131 someone in their 50’s is not a Boomer. 🤣🤣
Maybe! How's your health?
The reality is sometimes the market returns negative for years on end, mostly due to random events . Only the shallowest subject matter overlooks this, such a social media
This is the best.
My theory about mortgage debt is rather simple. If the mortgage debt is equal or less than what it would cost you to rent, then it’s good debt and it becomes a living expense more than a debt.
Same thought. If it's close to equal, you are now making progress in a retirement investment.
I think Mr. Ramsey is talking about the "Treynor measure" (also called the "Treynor ratio") when he discusses inverse beta ratios. The use of debt can magnify betas (that's why debt, or this magnification it produces, is also called "leverage"). Correct analysis should account for the impact of the leverage on both the returns and the risk.
Thank you for that nugget of knowledge, I am going to learn more about that
I had sufficient income and followed the most common, pay off mortgage early route to being a millionaire.
I used to think mortgages weren't worth paying off because of the absurdly low interest rate, but I had an "Aha moment" when I realized my mortgage essentially just made me overleveraged with my mutual funds. Unless you're a high-risk knucklehead whose day trading or investing in real estate, you should really only be comfortable with 15-20% leverage. In other words, multiply your mortgage balance by 5. If you dont have that much invested, then pay down your mortgage ASAP
You can't reach into the walls of your home & simply pull cash out.......pay down your mortgage as scheduled maybe adjusting to make that 13th payment a year in your monthly payment & invest your extra money. Should your house be paid off you still need a place to live & that "wealth" isn't even accounted for an an investment application......investing wins vs prepaying that home loan off sooner......
Do both, immediately!
Then there are many like me who had a divorce and saw their mortgage increase because of an equity payout to their ex-spouse. There's not much that can be done except putting the nose back to the grindstone after the 10 to 15-year setback.
I hate to say this but its not nose to the grindstone, its nose into the gravestone. Grindstone leads to gravestone. I suggest that you seriously consider moving out of the country as soon as your child support obligations are finished. Life is easier in many other cheaper countries.