11 Reasons to Carry a Big Long Mortgage - Reason 11
This article has been around since I was originating loans and it was recently updated on Ric's site. I thought I'd take each one of his comments as a single post and share a few comments for those of you not familiar with this article or Ric's original claims about keeping the biggest and longest mortgage you can afford.
"His words in Blue", my words in white. I'll deconstruct his key points.
SHOULD I PAY OFF MY MORTGAGE?
11 great reasons to carry a big, long mortgage.
Ric Edelman – Edelman Financial Services
REASON #11: YOU’LL NEVER GET RID OF YOUR MONTHLY PAYMENT, NO MATTER HOW HARD YOU TRY. You want to eliminate your mortgage so that you don’t have to make any payments in retirement. Unfortunately, even if you somehow pay off your mortgage, you won’t eliminate your payments. Paying off your mortgage means you no longer make any principal or interest payments. But mortgages are known as PITI, and we’ve only addressed the P and the I. Let’s not forget about the T and the other I – or the M and the R. We’re talking of course about taxes and insurance. Even if you manage to pay off the loan, you’ll still have to pay property taxes and homeowners insurance. Thus, your goal of “getting rid of the monthly payment” is impossible, because even if you eliminate the mortgage, you’ll still have tax and insurance payments. And as long as you own your house, you’ll have maintenance and repairs to contend with as well. So don’t bother trying to make your mortgage go away. Stop wondering whether you should pay off your mortgage. Instead, your focus should be to create wealth so that you can comfortably afford the cost of living in, enjoying and owning your home.
PARTIALLY AGREE: As we started, it cost money to live indoors. Your parents paid for it until you paid rent or bought your first house. If you rent, you do not have a mortgage payment, but you are paying a landlord's payment so you are making a mortgage payment, it's simply not your mortgage.
Also, there can come a time when you do eliminate your mortgage payment for a variety of reasons: 1) you can sell your house and rent in retirement to reduce your living expenses, and one other big benefit of savings is 2) you can at any time choose to have the savings pay the mortgage payment, and savings can pay the full PITI - so let me ask you. Would you rather retire with an extra $2,000,000 and have a $1,500 PITI mortgage payment (that is paid monthly from your savings account) or retire with $1,000,000 and have no mortgage payment... that's the $1M question.
Let's look at a quick example of what that might look like for a 65 year SAM that has a new 30 year mortgage of $2,000 per month mortgage, but because of his prior decisions he has $2,000,000 in savings.
Sam has $2,000,000 invested at age 65, and he draws down $2,000 a month for 30 years - with no additional investment his investment still grows to $19,152,784.
Compared to a 65 year old NICK with no mortgage and $1,000,000 in savings based on his prior decisions.
Nick has $1,000,000 invested at age 65, and he has no mortgage payment in retirement, but lets his money continue to grow for 30 years - with no additional investment his investment still grows to $11,020,278
TIP: If you've found this interesting, drop me a line at firstname.lastname@example.org and tell me what we can do to help you profit from our experience. If you want a copy of my Savings Interest Calculator to create your own comparison, let me know and I'll send it to you.