Ann Torrence wrote:
Actually, having a generous emergency fund AND saving up the bigger down payment BEFORE taking out the smaller mortgage (ala Dave Ramsay) sounds even better.
Ann Torrence wrote:
Have a mortgage balance of $75,476 AND the extra $20K of liquidity. Buy a smaller house.
Corrie Snell wrote:My response was: How does having a mortgage balance of [for instance] $75,476 (because one put an extra $20k down), beat having a mortgage balance of $95,476 with that $20k liquid, in the scenario where income disappears for some reason? The payment is still due on either of the two remaining balances at the end of the month. Having a generous emergency fund in either case will help pay it, but having that extra $20k liquid undeniably adds to the security of this person's situation. The POINT is, that the mortgage balance at this moment makes no difference whatsoever.
Corrie Snell wrote:
Charli Wilson wrote:I'm in the 'pay it off quickly' camp at the moment- mostly because my savings get 0.5% interest if I'm lucky, but I'm paying 3% on my mortgage.
And I don't get sick pay or anything at my job (and neither does my Partner- he is on a zero hours contract with no job security whatsoever!). So a mortgage for many years but at a low cost each month was important- and the ability to overpay whenever we wanted to try to pay it off faster!
Charli, with "no job security whatsoever," doesn't the idea of having a nice, cushy emergency fund (even if it is only earning .5%), to help, or fully cover the mortgage payment and other expenses in case of reduced or eliminated income in the future, as Mr. Edelman suggests with Reason #10, sound better than having a lower mortgage balance at that (hopefully never to occur) time? Assuming it will still take several years to pay off your mortgage, even making extra payments, what if the two of you lost your jobs a couple years short of your goal? As Mr. Edelman puts it, all those extra payments don't make a difference at that hypothetical moment, because there's still a balance on the mortgage, and the minimum payment is still due at the end of the month.
Sherri Lynn wrote:Once you pay it off, you can decide if you want insurance or would rather bet on yourself if you are a handy person and put away money in savings instead of paying insurance.
Ryan Workman wrote:I'm in the no mortgage camp. Mr. Edelman's advice sounds good while credit is cheap, but what happens when the music stops playing? Also he seems to be saying that paying off your mortgage is not the key to wealth. I don't see wealth as money. Time is wealth and a mortgage means I have to spend more time making money. If I grow a lot of my food (something I find satisfying) and own my home how much paper do I really need in the bank?
Dillon Nichols wrote:Alright, I'll bite... Note, Canadian mortgages are a bit different, so the details may differ.
1) 'Your mortgage doesn’t affect your home’s value."
So, if it doesn't affect your home's value, how is this an argument for holding a big mortgage, or a small one, or none? It seems like an arguable point, but it's not an argument for a big mortgage.
Seems to me he could as easily be saying "Your bra size does not affect your home's value", so you should obviously go get a boob job...
Also... if one wants to argue the point on its own merit, I would say that in MOST cases it's true, but should the market drop hard, the person with no mortgage has nothing to worry about unless unrelated circumstances force them to sell. But, for the people who have mortgages, the closer the value of the mortgage is to the value of the property, the smaller the drop they can weather without ending up underwater. Once you're underwater, if you don't have enough funds to cover that gap, you've got issues with the bank potentially refusing to renew your mortgage so that you are forced into foreclosure, or if circumstances force you to move, leave you unable to sell.
Dillon Nichols wrote:2) "A mortgage won’t stop you from building equity in the house."
As his own graphic shows, long term it will most likely somewhat limit the equity, but not prevent you building equity. Another non-argument IMO. There are exceptions, which lead to the troubles described above.
Dillon Nichols wrote:3) "A mortgage is cheap money."
True, at this particular moment in time. Notably, outside the US, mortgage terms are generally much shorter than the amortization period, so you can't count on the mortgage remaining cheap for the whole length.
This one I'm on board with. If you want to borrow money to invest, doing it by way of a mortgage is the cheapest way to fly by far. In the US you might get to deduct interest depending on how you file; in Canada, you can't deduct the interest, UNLESS you take out a loan against the house specifically to invest. Not quite the same as a regular mortgage.
Aaron Barkel wrote:Lets consider the scenarios with real world numbers. I will consider 3 scenarios. All scenarios are for a $100k house...
Ann Torrence wrote:Let me make my point more clearly. Taking out a mortgage does not "protect" one's home equity. Imagine your home is worth $500K today, and you take out a $400K mortgage, bank that money in some foreign bank. Next week the market falls and the home is suddenly worth $300K. Yes you have $400K in the bank. You also have a $400K obligation. If you were entirely rational and unethical, the correct mathematical decision is to walk away from the mortgage, leave the bank (hey it's all a betting game anyway, right?) taking the loss. If you liked the house, you could buy it right back with the $400k and pocket the difference. That is taking it to the extreme to make my point. No equity is protected by taking out a mortgage and it is misleading of him to suggest otherwise. When I spot something that egregious, I view the author's agenda with suspicion.