Paid Off Homes (dispute, refinance, expenses, get)

[mathjak107]

It is irrelevant what bill you cancelled out ,you cancelled out an expense you had .there is no roi on a cancelled expense. You may have more free cash to invest elsewhere or spend instead of paying a bill but what you do with the freed up cash flow is a separate issue. My wife would just spend it so there is no roi . I swapped one expense for another .

Think about this very carefully

[kyam11]

Originally Posted by numbersguy100

Do you actually have any idea of that? The heads of my firm each have a net worth of somewhere in the $4-5bn range (it's based on the value of the firm itself, which is the reason for the estimate). They have mortgages on their properties, boats, and planes.



I'm not going to touch the rest of this conversation, however.

I didn’t say none.

[SuiteLiving]

Originally Posted by mathjak107

It is irrelevant what bill you cancel .you cancelled out an expense you had .there is no roi on a cancelled expense

It’s very relevant, the fact you can’t name one proves its relevant.

[kyam11]

https://www.google.com/amp/s/www.for...-mortgage/amp/

Go read number 4

From that

"Paying off a 4% mortgage (even with a tax deduction of the average 28%) is like earning a risk-free rate of 2.88% (4% - 0.28% of 4% = 2. 88%). There aren’t many places on the planet where you can earn 2.88% risk free. No longer paying interest on your loan, paying it off can be like earning the equivalent risk-free return."

Yeah not widely accepted. Forbes is a fly by night operation.

https://www.schwab.com/resource-cent...ore-you-retire

From schwab:

"On the other hand, by no longer paying interest on your loan, paying it off can be like earning the equivalent risk-free return."

Another fly by night company


https://www.wsj.com/articles/SB10001...02810211631842

From WSJ:


"Want to beat the Treasury market? Pay off your mortgage.

Repaying a mortgage early offers, in essence, a risk-free return in the form of the interest saved."

Yet another fly by night operation.

https://www.aarp.org/money/investing...-mortgage.html

From AARP:
"I’ve long argued that people can earn a risk-free, 3 to 6 percent annual return on investment by paying down their mortgage."

https://www.fool.com/mortgages/2018/...or-invest.aspx

From fool:
"You have a guaranteed return on investment: When you prepay your mortgage, you always save on interest -- so you'll always get a return on investment. You don't have to hope your investments perform well."


https://www.cnbc.com/2017/06/22/pros...etirement.html

From CNBC:

"Paying off your mortgage is 100 percent safe. There is zero market risk"

and

"For example, paying off, or down, a 4 percent mortgage makes you 4 percent with no management fee."

SO let's see:

WSJ
Forbes
Motley Fool
CNBC
AARP
Charles Schwab

[Mr. Zero]

Originally Posted by numbersguy100

Do you actually have any idea of that? The heads of my firm each have a net worth of somewhere in the $4-5bn range (it's based on the value of the firm itself, which is the reason for the estimate). They have mortgages on their properties, boats, and planes..

Are these hedge fund guys? I remember reading about the CEO of Citadel taking out a mortgage.

[numbersguy100]

Originally Posted by Mr. Zero

Are these hedge fund guys? I remember reading about the CEO of Citadel taking out a mortgage.

Finance but not hedge funds. But I also don't think it's uncommon for ultra high net worth people to use leverage to purchase what they are nevertheless capable of buying outright.

[kyam11]

Originally Posted by numbersguy100

Finance but not hedge funds. But I also don't think it's uncommon for ultra high net worth people to use leverage to purchase what they are nevertheless capable of buying outright.

I don't think it's uncommon either but to act like anyone who doesn't have a mortgage is stupid and somehow doesn't understand money is laughable. While you didn't a few did.

Funny I linked no less than 6 articles above all who discuss paying a mortgage off being in essence a risk free return but they of course have no response to that.

I'm agnostic. Personal taste as far as I am concerned. I get why people do and why people don't. Most of the rich I know with actual cash (not on paper or in stock) tend to have no mortgages. They also don't have planes, second homes, etc as well.

[GeorgiaTransplant]

Originally Posted by kyam11

I don't think it's uncommon either but to act like anyone who doesn't have a mortgage is stupid and somehow doesn't understand money is laughable. While you didn't a few did.

Funny I linked no less than 6 articles above all who discuss paying a mortgage off being in essence a risk free return but they of course have no response to that.

I'm agnostic. Personal taste as far as I am concerned. I get why people do and why people don't. Most of the rich I know with actual cash (not on paper or in stock) tend to have no mortgages. They also don't have planes, second homes, etc as well.

“As Kitces says,”

https://www.kitces.com/blog/why-keep...orth-the-risk/

EXECUTIVE SUMMARY

Planners have long recommended that clients save and invest, even while they have a mortgage, since the long-term return on equities generally exceeds the interest rate on a mortgage. Yet in reality, investors don’t simply choose to invest in equities because the return is higher than a fixed alternative; instead, investors demand an equity risk premium over and above the risk-free rate to make equity investing worthwhile. For the traditional investor, the equity risk premium has represented the excess return of stocks over long-term government bonds. Yet for the mortgage borrower, the available "risk-free return" isn’t just a government bond, but to prepay the mortgage and eliminate the interest cost! As a result, while the investor looks for an equity risk premium over government bonds paying 2%, the mortgage borrower actually shouldn’t invest in stocks unless there’s an expectation to earn an equity risk premium over a mortgage interest rate that might be 4% to 5%! Consequently, clients should prepay their mortgages unless they expect a full 9%-10%+ return on equities in the current environment that sufficiently rewards them for the risk!

Mathjak, you normally love you some Kitces. How about his thoughts here? Still love them?

[JonathanLB]

Eh, I’m not so sure what’s common with ultra high net worth people but it probably depends on circumstances and how much cash is free. My dad has at some points held a mortgage but right now he owns both houses outright despite using maximum leverage throughout his career in real estate. That’s how he got to this level, by using leverage, but even still in his personal life he doesn’t seem to want a mortgage on his homes.

I still struggle with what makes the most sense sometimes because I’m going to make a heck of a massive downpayment on my next house with a small mortgage, but the downpayment is 10% of my networth (a tiny bit less) so in my mind I feel like that’s reasonable still since the rest is invested into income-generating assets. It is a lot to pay for a downpayment but I don’t feel like it’s unreasonable given the rest of my money is working for me. Hard to say, though, maybe it depends on the person.

[mathjak107]

Originally Posted by GeorgiaTransplant

“As Kitces says,”

https://www.kitces.com/blog/why-keep...orth-the-risk/



Mathjak, you normally love you some Kitces. How about his thoughts here? Still love them?

I do like him and I agree with his statement that paying the mortgage eliminates the cost of the mortgage but I disagree with his statement from an accounting standpoint that it is generating an roi by itself.

Like i said I can cancel cable tv and get the same effect on my free cash flow . In fact I rent and I can move from a 2 bedroom apartment to a one bedroom and eliminate that expense as well and see even more cash flow improvement and none of that constitutes an roi . Like kites said a mortgage is just another expense and represents your cost of housing .

From an accounting standpoint they all take away from the income you have and eliminating them are just a reduction in the expense side of things . Your revenue side remains unchanged.
Adding interest from a bond increases the revenue side unlike changes in the expense side which do not change revenue. Reducing the expense side adds to the free cash flow in the form of increased profit but income remains unchanged .

Financial guys tend to look at roi not from an accounting standpoint and they blur the difference between increasing income vs cutting an expense. Yet when stocks report they are very carefull to look at profit vs revenue because profit can come from cost cutting which has a bottom so right off the bat you can see a contradiction in things and cutting expenses is now not the same as increasing income

To any accountant reducing costs is never the same as increasing revenue although temporarily they can appear the same . But that is only until the expense is cut and other expenses keep rising And income stays the same . The difference between the two becomes very apparent when there is nothing left to cut.

Calling it the same just makes the math easier to understand but it can never be that receiving interest which increases income is the same as paying interest which comes out of existing cash flow and reduces what you have in hand. Two different sides of a balance sheet