I just had a monumental financial experience

[N-Smooth]

I used to think about it like “man, what would I do with my money if I didn’t have a mortgage payment? I’d be so rich!” 🤣 Now I think pffffft my mortgage is only $1200, it’s not even a big deal. I’ll always pay a little extra but paying it off just because is not on my radar right now.

 

[Unimog]

I'm of a mindset more like gravy right now. My mortgage is almost paid off, but I'm going to refinance at 2 or 3% or whatever. The bulk of the money will be invested back into the property, but the surplus I'm in no hurry to payoff. Let's put it this way: If I have 300k sitting in a safe investment (not stocks - something that can't lose value unless triple A insurance companies go bankrupt). If that is bringing in an average of 7-10% a year and my loan is costing 2-3% interest, it seems pretty simple to me that leveraging the house is getting me ahead. Now, if I didn't have the money to pay off the mortgage, I might not think about it in those terms. I completely understand the Ramsey approach might be a safer approach, but not necessarily the best way to maximize what you have.

 

[Gravy]

If my home were paid off (and it very nearly is or could be), I would take every ounce of of it I could get at 2-3% and use that for safe investment.
In other words I would buy more real estate and do it again.
If you could borrow a huge sum of money at 3% and pay it off at that tiny rate guaranteed (and live in the house while you're at it) wouldn't you invest all of it at 4%?

Change from 3% to 4% isn't 1%. It's a 33% increase. That's monumental.


Paying off your mortgage is safe. And I would never shame anyone for doing it.

It's definitely a GOOD, BETTER, BEST scenario.

 

[spaggyroe]

Let's put it this way: If I have 300k sitting in a safe investment (not stocks - something that can't lose value unless triple A insurance companies go bankrupt). If that is bringing in an average of 7-10% a year

@Unimog, would you mind elaborating? I'd like to research some additional investment options. What returns 7-10% without the risk of losing value? Are you talking about annuities?

Thanks!

 

[Unimog]

@Unimog, would you mind elaborating? I'd like to research some additional investment options. What returns 7-10% without the risk of losing value? Are you talking about annuities?

Thanks!

I'll preface this by saying that I am not an investment advisor or professional of any kind.

I have two different investments that have this behavior - one is an IRA/annuity and the other is a universal life insurance policy. Within these investment accounts, I can elect several types of funds and spread my investment over one or two or several options. Many of these options are index funds that are tied to S&P or some other major business or government index. There are options that ride the index as high as it can go, but can go negative. There are options that have a minimum threshold of loss for bad years - 0% return is a typical threshold. These funds with a threshold will also have a cap of how much you can earn - for example, if the index goes to 24%, your return may be capped at 16% or something like that. During the period every year or two when you can change elections, there is also an option to take a straight, guaranteed 4 for 5% (don't remember the actual amount). This would be a good option in cases where you think the market is going to take a dive for the full year.

Even with a 0% threshold, there is risk of the company holding the investment to go bankrupt. While this is a possibility, I think it is remote enough that if that were to happen, we would not be worrying about investments.

Particularly with whole life or universal life used as an investment tool, there are also significant tax advantages to using retirement money from the life insurance policy. The life policies have an obvious added benefit of a death payout and protection against disability besides the cash value. Both annuities and universal life insurance can incur significant costs to the investor, especially over the short term, and pay big commissions for the person selling them, so I recommend educating yourself or working with a financial advisor you trust.

 

[OldGeezer]

I understand paying a low mortgage interest rate and earning a higher rate investing. But at this point in my life I could never recover from any losses. I wont risk it.