Mrcauser’s Weblog

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If your rich…..

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Paying off your house is low on your priorities. With a million or so in interest be hard to beat the tax savings. But for just about everyone you’ll ever meet in your life it’s the only way to go. It never ceases to amaze me that “financial gurus” advocate not dumping the mortgage and invest the money in the stock market, gold, baseball cards, pyramid schemes or even a bank. What’s with that?

Oh yeah, these guys sell this shit!

If you consider that most of us don’t have a pot to piss in because we spend our whole lives paying on a house, let alone paying rent, you have to really like gambling to keep this up. Especially when you consider that a house cost more than it’s worth and you always need a sucker to pay more than you did just to get rid of it.

Of course, the sooner the better you do the better you’ll feel.

Being part of the “trailer trash” set means that I can scrape up a couple of hundred bucks a month to be snug as a bug in my mobile and could probably have enough dough buy your place. But why would I put my self in that  position. I would move into an RV first and visit my kids in Florida.

Since Patti and I will have a couple of grand a month in Social Security money we will be able to do damn near what we please while most working stiffs slave away for the bank paying all those mortgages, credit cards, student loans and don’t forget car payments out the Ying Yang.

Or they go completely bust and end up under a bridge.

I’ll still chip in a few bucks to the salvation Army to keep the soup kitchen working.

Do you really think things are going to improve that much when we boomers retire? You going to buy all those houses? If you’re still working you will have your hands full buying food and shelter. Taxes through the roof. What’s it going to be like supporting 80 million or so geezers who don’t have a dime? Remember all their wealth is in the “equity” in their houses. And try taking their Social Security away.  Hell a bunch of them are half nut ‘Nam vets.

With guns!

I know, Oba mama will save you. Or Sarah maybe. Hillary? The ChiComs? Good luck with that!

Why You Shouldn’t Pay Off You Mortgage (and Why I Did Anyway) – CBS

The monthly return from paying down the mortgage, on the other hand, is a sure thing. So the fair comparison is not with stocks but with other close-to-sure things, like Treasury bonds or CDs. That makes the mortgage payoff look a little less dumb. I know of only a handful of CDs paying 3% before taxes. Treasury bonds don’t even come close.

The one exception would be when the saving alternative is a 401(k). There the company match, which might typically be 50% if your company offers one, can make the return on a conservative stable-value fund competitive with the payoff you get from wiping out your mortgage. Where else are you going to get an immediate 50% return, guaranteed? Of course, if you’re already contributing as much to your 401(k) as the company will match (and you are, aren’t you?) that option isn’t available.

You expect inflation. A fixed-rate mortgage is a good hedge against inflation. You pay the lender a fixed number of dollars, even as inflation makes each dollar less valuable and puts more dollars in your paycheck. If you expect hyper-inflation the last thing you’d want to do is pay off your mortgage–as long as you were sure you’d keep your job.

You expect housing to rebound. If housing prices bounce back, having a mortgage boosts your equity even faster than the market lifts the price of your house. Say you have a $500,000 house with a $400,000 mortgage. Over the next five years, assume the price rises to $600,000. Your home has appreciated by 20%, but your equity has doubled, from $100,000 to $200,000. It’s the magic formula that minted millionaires by the bushel during the real estate bubble.

The problem is, while inflation and a housing rebound may seem likely sooner or later, they’re no sure thing. Deflation has ruled the Japanese economy for two decades and real estate is still drastically below its peak in 1990. It’s a long shot to happen here, but would you bet the house on it, if you had the choice?

Written by mrcauser

December 28, 2010 at 7:09 pm

Posted in Uncategorized

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