Paid Off Homes (medical, GEICO, live, bankrupt)

[kyam11]

Originally Posted by mathjak107

paying off a loan is only as risk free at the end of the day as what that loan bought . a mortgage is neutral so to speak . if it buys something that lost money or provided poor value then mortgage or not that investment was poor . whether your own money or the banks money it still was a bad choice .

so the mortgage is 1/2 a story . you can buy bonds with a mortgage and that investment is not an inflation hedge , but if i buy real estate with that mortgage , that can act as an inflation hedge . both those situations are true whether it is my money or the banks money and if bought at the wrong time it is a poor investment choice ..

Literally has nothing to do with the guaranteed return paying a loan off has. Your first statement is patently false. It is amazing how little you understand about first year finance concepts. Philosophically your believes are fine but your understanding of already defined financial meanings is completely non existent

[fumbling]

Originally Posted by mathjak107

your logic is missing a few things .

it is like we rent and i can buy a co-op and save 6k over what we pay now a year in rent . but if i buy for cash which is like paying off a mortgage i lose the additional 12k a year in income on the dough tied up in the apartment. so tying up that money actually reduces cash flow by 6k a year .
so it is not as simple as your theory above about staying invested longer .

it is irrelevant because you gave up the income stream on what is now tied up . you can see our cash flow would actually be 6k a year less and growing as rates go up with the cash in the apartment .

If you have guaranteed 12k income that's a case where having a mortgage that's less than that is fine but all I'm saying is if people assume 12k income from stock market appreciation is "guaranteed" like in your example, that's not the case.

The problem comes when the markets don't cooperate in any given year, then the mortgage payments seem insurmountable and people give up (remember 2008 when housing prices went down and people walked from underwater mortgages even though the right thing to do was just to stick it out, but if they had no mortgage, they could easily stick it out to see a housing and stock market recover to new highs).

[mathjak107]

this really is not true at all . your income in retirement if you base your income on a safe withdrawal rate is already based on stocks not co-operating .

a 4% safe withdrawal rate means hell or high water your income stream stays the same since it is already based on the worst of times just so markets do not have to nor should co-operate every year. you don't adjust your income each year based on that yeas market results unless you choose a variable draw method and even that is capped in a down year at a mere 5% .

your income stays the same . if you no longer have the mortgage you can simply direct that cash flow elsewhere but unless a worse outcome than we already had for the 1965/1966 retirees comes along , your safe withdrawal rate should hold just fine with no greater problem producing that income in a down year or down years . no retiree group has seen a worse outcome in 52 years than a 4% safe withdrawal rate is based on ,..

[mathjak107]

Originally Posted by kyam11

Literally has nothing to do with the guaranteed return paying a loan off has. Your first statement is patently false. It is amazing how little you understand about first year finance concepts. Philosophically your believes are fine but your understanding of already defined financial meanings is completely non existent

believe me i understand far more about the concept of a mortgage it appears than you do . taking a loan is only a partial part of a situation , what you do with that loan is key to its value and safety . the loan only provides money to buy something , it is neutral in itself until you do something with it. you cannot view it in isolation from the it's use to judge risk or not . it is like a tool , you bought money to do something and your total risk is in what you do with that money and how successful that use is .

paying off a mortage saved you an expense , that expense is the interest you were paying . it increased your EXISTING CASH FLOW , but it added nothing additional to the income side of things .

the problem is you don't understand the concept of decreasing an expense and increasing existing cash flow vs an asset that produces more income and actually increases your income numbers . you no longer are paying 4% interest and that improves cash flow of existing income . bond interest increases your income dollars .

cutting costs is not growing income .it only appears to be the same until there is nothing left to cut and expenses keep rising . then it becomes apparent that cutting one of your expenses is not growing income it is only improving cash flow of existing income ..

you are trying to break out the sausage in to the individual ingredients and commenting how they taste alone but it is pretty meaningless because they all make up the sausage which determine the final taste .

bottom line is a mortgage is neutral until you do something with it and ultimately it is what you buy and it's success that determines the risk of the whole situation .

[kyam11]

Originally Posted by mathjak107

believe me i understand far more about the concept of a mortgage it appears than you do . taking a loan is only a partial part of a situation , what you do with that loan is key to its value and safety . the loan only provides money to buy something , it is neutral in itself until you do something with it. you cannot view it in isolation from the stand point of i am saving the interest isolated from it's use . it is like a tool , you bought money to do something and your total risk is in what you do with that money and how successful that use is .

you are trying to break out the sausage in to the individual ingredients and commenting how they taste alone but it is pretty meaningless because they all make up the sausage which determine the final taste .

Let me know when you learn the definition of basic financial definitions from a first year finance course. As I said paying off a mortgage provides a risk free return of the interest rate (minus any tax savings) of the mortgage being paid off. Your philosophical discussion of why one should or should not hold a mortgage has no relevance. Period. Never stated once on anything related to whether someone should or should not pay off a mortgage as that is a personal preference based on nuneroua factors

And no I forgot more about finance today than you will likely ever know.

[mathjak107]

your logic in not looking at the risk of the whole situation and focusing on just the cost of the money without the risk attached to it makes little sense .

getting rid of a 4% interest rate is risk free , there is no question . there never is a risk in eliminating an expense and interest is an expense! .

but that does not mean that money you borrowed and utilized is risk free and that was the purpose of the mortgage and you can't isolate it because you eliminated the expense of the interest .

ultimately a mortgage is just a tool and the real deal is what you do with it that determines risk . paying off the mortgage eliminated the expense of the interest but the real risk is in what that money you paid off did .

[Thatsright19]

Originally Posted by kyam11

Let me know when you learn the definition of basic financial definitions from a first year finance course. As I said paying off a mortgage provides a risk free return of the interest rate (minus any tax savings) of the mortgage being paid off. Your philosophical discussion of why one should or should not hold a mortgage has no relevance. Period. Never stated once on anything related to whether someone should or should not pay off a mortgage as that is a personal preference based on nuneroua factors

And no I forgot more about finance today than you will likely ever know.

Damn, you must go through some hardcore finance Training to be a Dragon nation member.

You seemed to have forgotten everything I mentioned in post 20.

[mathjak107]

interest is an expense that is all it is . you pay off a mortgage you eliminate the expense of the interest , there is NO risk in that.

i wish i could just pay cash , not take a mortgage and consider it paying myself 4% interest and watch my income grow . . but the reality is all i am doing at the end of the day is saving the expense of the interest and while my cash flow may be better without the expense , my income unfortunately is the same as it was and i paid myself nothing .

in fact my income would be less if i paid cash for my house , because now i am not getting any income on the money i spent .

any other bills i could have eliminated by the same amount would have done the same thing for my existing cash flow whether it was the mortgage ,utility bill , cable bill , etc,. it all has the same effect on my cash flow and none of that pays me a dime more in income, it simply eliminated the expense . mortgage or cable bill , the effect to cash flow is the same. . .

[ncole1]

Originally Posted by UnfairPark

Is there a website with information about percentage of paid off homes in every town? Just for fun, to see which town has more fiscally responsible crowd.

There are many confounding variables there. Even the most fiscally responsible family is unlikely to have the cash to buy their first house outright unless they rent for 10 years or more while saving or have a large inheritance. The median household income is about 1/5 th of the median house price, which means many are renting.

[ncole1]

Originally Posted by 22003yo

Having a paid off home would put you at higher legal risk, no? It's really easy to find out if you have a paid off home it's not as easy to find out someone's brokerage accounts, and if it's in a retirement account it's even harder. At least if you have a mortgage, the most you lose is your equity.

Get a good homeowner’s insurance and umbrella coverage, on the off chance somebody gets hurt. Much cheaper than keeping large interest payments just in case you lose a big law suit!