11 Reasons to Carry a Big Long Mortgage - Reason 6
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 #6: MORTGAGE PAYMENTS GET EASIER OVER TIME.
When you lock in a rate for a mortgage, you lock your monthly payment for the next 30 years – assuming you don’t refinance or take out a home equity loan. But over time, that payment becomes cheaper relative to your income – especially if yours is a fixed-rate loan. Payments on such loans will never rise, but incomes usually do. So as your household income rises over time, your mortgage payment has less of an impact on your overall finances.
TOTALLY AGREE: This is true, but the reason it is true is inflation. If your income stays the same for 30 years, your payment would not get easier. Because we average 2-3% inflation for the last 80 years, employers know they have to keep your buying power the same over time, so most 'raises' are 2-3% COLA (Cost of Living Adjustment) so you maintain your buying power. Your income today might be $100,000 but in 30 years with inflation it would be closer to $200,000. Your income doubled but your buying power remained the same.
What this does is erode the 'feeling' of your payment being a struggle, and that's a huge benefit of having a mortgage over paying cash. Your income is typically going to go up, but a 30 year fixed mortgage is going to stay the same. If you had an ARM and rates went up over 30 years, your payment wouldn't feel easier then.
TIP: If you really want to understand this better, I highly recommend this post: https://www.borrowsmartuniversity.com/single-post/inflation-and-borrowing - you can see how inflation impacts borrowing over the life of the home owner.