I paid off my home and regretted it. You can’t spend the equity in your home unless you sell it. However, I now have a $1M line of credit on said paid off house. Using it currently to buy a lake lot and build a lakefront property to sell. Target sale price will yield $300k-$400k of profit. Will take 6 months. My interest payments over that period will be approx $20k. That’s a heck of an ROI!
An advice from someone you had the option to pay off his mortgage but decided to invest in the stock market. I would have rather done both than put all the extra money into the stock market. My stock portforlio is down 50%. I could have been mortgage free by now if I had paid off my house and then now concentrate on investing.
Yikes! The key is definitely making sure you are investing the money wisely and not taking on unnecessary risk. Easy to lose 50% or more in the stock market if you are doing stock picking or short-term trades. Sorry you had this experience.
The people that comment disagreeing and saying it’s better to pay off their mortgage are making decisions based on “fear or feelings” instead of logic…can’t rationalize with people who are not logical
I think a big part of the issue is that you have people like Dave Ramsey whose advice primarily targets lower income individuals with credit card debt and/or student loans saying to do things like pay off your mortgage for "peace of mind." If you buy a home, and can afford that home, paying off the mortgage sooner than you need defies common sense.
I hear this statement made a lot. While I respect that people have differences of opinion, I wholeheartedly disagree. In my opinion, paying off low interest rate debt is one of the riskiest things you can do, especially in the current economic environment. I could never have peace of mind knowing how much money I was leaving on the table. Appreciate you watching!
@sharonwinsmith I see your point and dud not mention I do contribute 18% of my income into retirement through 401k, Roth Ira, and taxable accounts but everything extra goes to mortgage principle. I have 4.5% interest on the home so I should have said I am doing both and just looking forward to paying off the 30 yr in December and only took 16. Thanks for your info and I cant wait to bump the investments up to 30%!!!
I did both option 1 and option 2. Option 2 is all fun and games until someone loses a job or becomes disabled. I’ve got to say, living in a 100% paid off house since my mid 40s has been hugely advantageous in terms of growing net worth (option 1). Having debt is incredibly risky. If you lose your income and stock prices dive like in early 2020, it’s not a good situation. I was able to sleep at night like a baby in 2020 while friends and family were losing their jobs and sanity. They had huge mortgages and 25% declines in portfolios. I had a paid off house, no debt and 3 years living expenses in the bank. No crisis.
Thank you for your video. Using money from the value of your personal residence with a mortgage it’s extremely expensive. On a 4% interest mortgage, the home owner should calculate it differently than the Bank. 1) Calculate the mortgage payment for the current month, then identify how much was the principal and Interest. Then divide the principal by the interest for that one month. The result it’s the actual interest percentage for every dollar the home owner paid to the Bank that month.
Thank you for watching! Using money from a mortgage on your personal residence is not expensive - it is actually usually extremely inexpensive (assuming you get a mortgage or refinance during a time with low interest rates). A mortgage on a personal residence is usually one of the cheapest forms of borrowing you can do, if not the cheapest. If you want to build wealth and achieve financial freedom, you have to understand the concept of opportunity cost and how to put money to the most efficient use possible without taking on unnecessary risks. You also need to understand the tax and asset protection benefits that come from using good debt. The fact that the mortgage amortizes (which is what I think you are referring to in your last few sentences), makes the opportunity cost even higher. I used a basic example to illustrate the simple concept.
Point well made, however, the value of a 1 mil dollar home after 10 yrs would be a lot higher than that especially in NY or CA. Am I wrong? And you can always borrow against it particularity if interest rates are low.
The problem is, despite knowing this, the vast majority of people still fail to invest. They become too comfortable with their monthly mortgage payment and consumerism and don’t leave enough margin to actually invest. Unless you’re already rather wealthy, investing requires discipline to make the necessary sacrifice.
Having a paid off mortgage is better than investing. The stock market is always reacting to Banks closing, Federal Reserve announcements or corporation cutting back. Now with inflation its not smart to have a mortgage.
Thanks for watching! I think the question to think about would be - why pay off a mortgage if the interest rate on the debt is less than what you could even get from T-bills or even some savings accounts at banks right now (which is a common fact pattern for many in the U.S)? Also, there are many types of investments besides just stocks. Having fixed-rate debt with a low interest rate, like a mortgage, is even more valuable during periods of high inflation because you are repaying the loan with cheaper dollars.
@sharonwinsmith I understand what you're saying. Right now, it's good. I looked at the 2008 crash where people lost half of their investments, homes, and their livelihood. I prefer to have a roof over my head. Once it's paid for, I can double my investments at that time. It's still a win win situation.
I don't know a lot of people who experienced what you described during the 2008 crash. I think the people who did were speculating on real estate and buying houses they couldn't afford. If there is a risk you can't afford the mortgage payment because of a market downturn, you can't afford the house in the first place. Yes many investments (stock market, real estate, etc.) experienced significant drops in value. However, as a long-term investor who doesn't time markets or do stock picking, I don't care a lot about temporary declines in values.
i caught your vid just in time i,m now paying off my HELOC. not my motgage. It is in a " payoff situation and the rate is getting higher , My mortgage is low , and i can carry it easily. But i have often thought about investing , but never sure if this is PROFITABLE or just treading water??.
The key is making sure you are making investment returns in excess of the mortgage interest rate. You have to keep the money invested for this strategy to work.
Home is the new savings account with a great return (depending on when and where u bought) pay down the Mtg and save the unnecessary intrest paid to the bank. A "penny saved is a penny earned" Instead get Personal Lines of credit which charge simple intrest and invest that instead?
I’m following your example but it doesn’t illustrate the amortization of a mortgage where you really are paying far more interest than principal at first and this number changes over time. Your examples show fixed interest and principal over time.
Paying interest isn't a problem in this context. The point is you are putting the cash to its most efficient use possible. I would be happy to pay full interest on the mortgage if I can invest that cash and get a better return. You aren't better off saving interest payments on the mortgage if your lost opportunity cost from that money is higher.
You have to pay taxes on the investment gains though while paying off mortgage in not taxed. This should probably go into the spreadsheet. Furthermore, this extra income will be taxed at one’s highest bracket.
Why on earth would you ever invest your money in a way that you paid tax on investment gains at your highest tax bracket? If you do good tax planning you should be able to avoid paying significant tax, if any, on investment income.
I personnally know some baby boomers that paid their mortgages early on expensive houses after a couple of relocations in their lives and never invested any of the money and are now struggling to keep up with Homeowners insurance and property taxes. They say they can't take out a equity loan due to high rates and being in debt again. I'm just shaking my head.
Hi. Great video. So our mortgage is 2.25% and we’ve been using this strategy for a bit now. We decided on a 15 year over a 30 year when we did a refi a few years ago. Mortgage around $425k. Do you think it makes much of a difference with choosing the 15 year versus the 30? My guess is you’ll say that we could have lowered the payment more and also invested that. But curious your thoughts. Thanks!
Hi Sharon, thanks for the video and sharing your perspective. Constructively speaking, you begin the video by giving such a huge disclaimer about who your strategy is NOT for but then proceed to reference/criticize Dave Ramsay’s principles as outdated when his target audience are the exact people you have cautioned to avoid your strategy, which is likely +90% of working adults. With over 50% of people making over $100K a year living paycheck to paycheck, it sounds like your target audience is a very slim percentage of high income earners possibly making way over $100K a year and who have $50K of excess annual take-home pay as shown in your example (or who can even afford to comfortably buy a $1million house). Dave Ramsey’s principles are not about maximizing wealth; it’s about creating a foundation for living and retiring with dignity. The principles help people develop the discipline to get out if debt and create enough margin to actually invest a good percentage of their income without playing arbitrage on a primary residence as your strategy suggests. Very few people possess the discipline and circumstances to do what you’re suggesting. Truthfully, it doesn’t take much effort for someone to become a net worth millionaire in their lifetime and yet the majority of people fail to do so. This is because it is more of a human behavior problem than a math problem. If a 30 year old person making $90K a year invests 15% of their gross income at a 8% rate of return for 35 years until the age of 65, that works out to be roughly $2.58million and $206K of prospective annual returns at 8% which is way more than the initial $90K income assumption postulated as the input in my calculation. When you consider that the median/middle net worth of people ages 65-74 is only $266K, having $2.58million and a fully paid of house is tremendously more dignifying than the life that the majority of Americans are living.
Thanks for watching! Respectfully, your comments do not reflect my experience from working with clients for a number of years. There are multi-millionaires with no bad debt making double and triple mortgage payments each month on 3%-4% debt because they listen to people like Dave Ramsey. The problem is no one really talks about how to really build wealth and achieve financial freedom. My mission is to change that.
The issue is, despite knowing this, the majority of people still fail to live a disciplined life and invest accordingly. 50% of people making over $100K are living paycheck to paycheck. Dave is helping to solve this behavior problem so that people can actually have enough margin to invest rather than doing nothing at all.
I paid off my home and regretted it. You can’t spend the equity in your home unless you sell it. However, I now have a $1M line of credit on said paid off house. Using it currently to buy a lake lot and build a lakefront property to sell. Target sale price will yield $300k-$400k of profit. Will take 6 months. My interest payments over that period will be approx $20k. That’s a heck of an ROI!
To each his own… I would rather have a paid off mortgage. And as fast as possible.
Fair enough as long as you know how much money you are potentially leaving on table in lost investment potential on that cash. Thanks for watching!
An advice from someone you had the option to pay off his mortgage but decided to invest in the stock market. I would have rather done both than put all the extra money into the stock market.
My stock portforlio is down 50%. I could have been mortgage free by now if I had paid off my house and then now concentrate on investing.
Yikes! The key is definitely making sure you are investing the money wisely and not taking on unnecessary risk. Easy to lose 50% or more in the stock market if you are doing stock picking or short-term trades. Sorry you had this experience.
It would be interesting to see a video on how to invest different amounts: 120k, 300k 500k 1m, etc
The people that comment disagreeing and saying it’s better to pay off their mortgage are making decisions based on “fear or feelings” instead of logic…can’t rationalize with people who are not logical
I think a big part of the issue is that you have people like Dave Ramsey whose advice primarily targets lower income individuals with credit card debt and/or student loans saying to do things like pay off your mortgage for "peace of mind." If you buy a home, and can afford that home, paying off the mortgage sooner than you need defies common sense.
Would rather pay off mortgage. Zero risk and peace of mind.
I hear this statement made a lot. While I respect that people have differences of opinion, I wholeheartedly disagree. In my opinion, paying off low interest rate debt is one of the riskiest things you can do, especially in the current economic environment. I could never have peace of mind knowing how much money I was leaving on the table. Appreciate you watching!
@sharonwinsmith I see your point and dud not mention I do contribute 18% of my income into retirement through 401k, Roth Ira, and taxable accounts but everything extra goes to mortgage principle. I have 4.5% interest on the home so I should have said I am doing both and just looking forward to paying off the 30 yr in December and only took 16. Thanks for your info and I cant wait to bump the investments up to 30%!!!
I did both option 1 and option 2. Option 2 is all fun and games until someone loses a job or becomes disabled. I’ve got to say, living in a 100% paid off house since my mid 40s has been hugely advantageous in terms of growing net worth (option 1). Having debt is incredibly risky. If you lose your income and stock prices dive like in early 2020, it’s not a good situation. I was able to sleep at night like a baby in 2020 while friends and family were losing their jobs and sanity. They had huge mortgages and 25% declines in portfolios. I had a paid off house, no debt and 3 years living expenses in the bank. No crisis.
@@NoDamselNDistressEXCELLENT!!
Both options make sense. The determining factor is what makes you feel best. As long as you're financially sound, peace of mind is the differentiator
Home price appreciation was ignored over 10 years! The million $ home would be worth 1.5M$ in 10 years. Inverts the result.
Thank you for your video.
Using money from the value of your personal residence with a mortgage it’s extremely expensive.
On a 4% interest mortgage, the home owner should calculate it differently than the Bank.
1) Calculate the mortgage payment for the current month, then identify how much was the principal and Interest. Then divide the principal by the interest for that one month. The result it’s the actual interest percentage for every dollar the home owner paid to the Bank that month.
Thank you for watching! Using money from a mortgage on your personal residence is not expensive - it is actually usually extremely inexpensive (assuming you get a mortgage or refinance during a time with low interest rates). A mortgage on a personal residence is usually one of the cheapest forms of borrowing you can do, if not the cheapest. If you want to build wealth and achieve financial freedom, you have to understand the concept of opportunity cost and how to put money to the most efficient use possible without taking on unnecessary risks. You also need to understand the tax and asset protection benefits that come from using good debt. The fact that the mortgage amortizes (which is what I think you are referring to in your last few sentences), makes the opportunity cost even higher. I used a basic example to illustrate the simple concept.
Point well made, however, the value of a 1 mil dollar home after 10 yrs would be a lot higher than that especially in NY or CA. Am I wrong? And you can always borrow against it particularity if interest rates are low.
Quick summ: a reliable investment with a yield % > mortgage interest % -> more profit long run.
Good advice, and thank you for creating this for us!
Thank you for watching!
The problem is, despite knowing this, the vast majority of people still fail to invest. They become too comfortable with their monthly mortgage payment and consumerism and don’t leave enough margin to actually invest. Unless you’re already rather wealthy, investing requires discipline to make the necessary sacrifice.
Omg. Thank you so much for this video. You convinced me to stop paying extra!
Thanks for watching!
Having a paid off mortgage is better than investing. The stock market is always reacting to Banks closing, Federal Reserve announcements or corporation cutting back. Now with inflation its not smart to have a mortgage.
Thanks for watching! I think the question to think about would be - why pay off a mortgage if the interest rate on the debt is less than what you could even get from T-bills or even some savings accounts at banks right now (which is a common fact pattern for many in the U.S)? Also, there are many types of investments besides just stocks. Having fixed-rate debt with a low interest rate, like a mortgage, is even more valuable during periods of high inflation because you are repaying the loan with cheaper dollars.
@sharonwinsmith I understand what you're saying. Right now, it's good. I looked at the 2008 crash where people lost half of their investments, homes, and their livelihood. I prefer to have a roof over my head. Once it's paid for, I can double my investments at that time. It's still a win win situation.
I don't know a lot of people who experienced what you described during the 2008 crash. I think the people who did were speculating on real estate and buying houses they couldn't afford. If there is a risk you can't afford the mortgage payment because of a market downturn, you can't afford the house in the first place. Yes many investments (stock market, real estate, etc.) experienced significant drops in value. However, as a long-term investor who doesn't time markets or do stock picking, I don't care a lot about temporary declines in values.
i caught your vid just in time i,m now paying off my HELOC. not my motgage. It is in a " payoff situation and the rate is getting higher , My mortgage is low , and i can carry it easily. But i have often thought about investing , but never sure if this is PROFITABLE or just treading water??.
The key is making sure you are making investment returns in excess of the mortgage interest rate. You have to keep the money invested for this strategy to work.
Home is the new savings account with a great return (depending on when and where u bought) pay down the Mtg and save the unnecessary intrest paid to the bank. A "penny saved is a penny earned" Instead get Personal Lines of credit which charge simple intrest and invest that instead?
Can you do one for us poorer folk? What if we only have an extra 2k per year?
Is it better to gift a free & clear house OR a mortgaged to the hilt house?
Just discovered your channel! Super content & delivery
I’m following your example but it doesn’t illustrate the amortization of a mortgage where you really are paying far more interest than principal at first and this number changes over time. Your examples show fixed interest and principal over time.
Correct- mortgage amortization would make the opportunity cost even higher
Thank you for your knowledge and explanation. I have been considering this and you’ve helped me to come to a decision about investing 💰
Thank you for watching! 🙂
On my new mortgage every dollar paid to principal pay down was matched the interest saved.
Paying interest isn't a problem in this context. The point is you are putting the cash to its most efficient use possible. I would be happy to pay full interest on the mortgage if I can invest that cash and get a better return. You aren't better off saving interest payments on the mortgage if your lost opportunity cost from that money is higher.
You have to pay taxes on the investment gains though while paying off mortgage in not taxed. This should probably go into the spreadsheet. Furthermore, this extra income will be taxed at one’s highest bracket.
Why on earth would you ever invest your money in a way that you paid tax on investment gains at your highest tax bracket? If you do good tax planning you should be able to avoid paying significant tax, if any, on investment income.
Good info, thanks for sharing!
Thank you!!
I personnally know some baby boomers that paid their mortgages early on expensive houses after a couple of relocations in their lives and never invested any of the money and are now struggling to keep up with Homeowners insurance and property taxes. They say they can't take out a equity loan due to high rates and being in debt again. I'm just shaking my head.
I am seeing this issue come up a lot with people who buy rental properties for investment purposes and paid 100% cash
Great content!
Thank you!
Hi. Great video. So our mortgage is 2.25% and we’ve been using this strategy for a bit now. We decided on a 15 year over a 30 year when we did a refi a few years ago. Mortgage around $425k. Do you think it makes much of a difference with choosing the 15 year versus the 30? My guess is you’ll say that we could have lowered the payment more and also invested that. But curious your thoughts. Thanks!
It’s always better to go with the longer mortgage.
@@mrichards7849 Agree. 🤷♂️
Hi Sharon, thanks for the video and sharing your perspective. Constructively speaking, you begin the video by giving such a huge disclaimer about who your strategy is NOT for but then proceed to reference/criticize Dave Ramsay’s principles as outdated when his target audience are the exact people you have cautioned to avoid your strategy, which is likely +90% of working adults. With over 50% of people making over $100K a year living paycheck to paycheck, it sounds like your target audience is a very slim percentage of high income earners possibly making way over $100K a year and who have $50K of excess annual take-home pay as shown in your example (or who can even afford to comfortably buy a $1million house).
Dave Ramsey’s principles are not about maximizing wealth; it’s about creating a foundation for living and retiring with dignity. The principles help people develop the discipline to get out if debt and create enough margin to actually invest a good percentage of their income without playing arbitrage on a primary residence as your strategy suggests. Very few people possess the discipline and circumstances to do what you’re suggesting. Truthfully, it doesn’t take much effort for someone to become a net worth millionaire in their lifetime and yet the majority of people fail to do so. This is because it is more of a human behavior problem than a math problem.
If a 30 year old person making $90K a year invests 15% of their gross income at a 8% rate of return for 35 years until the age of 65, that works out to be roughly $2.58million and $206K of prospective annual returns at 8% which is way more than the initial $90K income assumption postulated as the input in my calculation.
When you consider that the median/middle net worth of people ages 65-74 is only $266K, having $2.58million and a fully paid of house is tremendously more dignifying than the life that the majority of Americans are living.
Thanks for watching! Respectfully, your comments do not reflect my experience from working with clients for a number of years. There are multi-millionaires with no bad debt making double and triple mortgage payments each month on 3%-4% debt because they listen to people like Dave Ramsey. The problem is no one really talks about how to really build wealth and achieve financial freedom. My mission is to change that.
Thank you for this Sharon! Great video!
Thank you for watching! 🙂
Great gouge. Thanks.
Thanks for watching!
You are right. Dave thinking on paying off 3% mortgage debt when bank is giving 5% on savings is outdated
💯
The issue is, despite knowing this, the majority of people still fail to live a disciplined life and invest accordingly.
50% of people making over $100K are living paycheck to paycheck. Dave is helping to solve this behavior problem so that people can actually have enough margin to invest rather than doing nothing at all.
I completely agree that Dave Ramsey is helpful for someone trying to get out of bad debt like credit card debt or who don't have any savings.