Mortgage #5 - 15 Year Mortgage vs. 30 Year Mortgage
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@PBowyer123 ...interest around year 13 of the 30 year time frame. Why? Because they invested the difference between the 2 payments.
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@PBowyer123 Inflation has increased an average of 2.5% since 2000. According to the Census Bureau, incomes have not increased at all since 2000. So no, they do not move at the same pace. If they did, it still does not affect the issue at hand. To compare apples to apples, both the 15-year mortgage holder and 30-year mortgage holder would see wage increase. So that's a moot point. This isn't about paying 30 or 15 years of interest. Properly designed, the 30-year mortgage holder stops paying...
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You say inflation lowers the value of money, but is it not correct that price inflation and wage inflation move at more or less the same pace? And even with the residual difference of these inflations, would the nominal loss of paying 30 years of interest as opposed to 15 not outweigh the differences between price and wage inflation? Thanks
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@felix1177 ...cost of funds available. Not to mention the tax advantages that make the EPR (effective percentage rate) even lower. It's a perfect opportunity to build wealth in the safest way possible. It's really a no-brainer. And instead of paying all the extra money I can as extra principal payments, I invest them in a side fund that's liquid. That's my safety. If I ever lose my job or need money in an emergency, I will have it available. Equity is not liquid and earns 0% interest.
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@felix1177 No, it would not make sense to borrow money to invest in stock if the house was paid for. I say that for 2 reasons. First, I don't invest in the stock market. Too much risk. Second, there's nowhere that I know of, where you can borrow money at a low enough rate to earn a guaranteed spread apart from a mortgage. It's really a beautiful thing. Everyone has to live somewhere, a house is the largest expense we'll ever have, and the rates have historically always been the lowest...
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@felix1177 You ask What Would Jesus Do? Well, I think He would recommend investing the money. In the parable of the talents, the guy who buried his money because he wanted it to be safe was called "wicked" and "lazy" by Jesus. The others invested their money and they were praised.
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@felix1177 ...that you are making those mtg payments from your income. I have income too. Remember, my $300k is paying the mtg payments from the interest I earn by my spread. I can pay myself the same you are because we both work. Simple really. You need to realize that mathematically, no matter how you look at it, I will build much more wealth than the guy who pays cash for the house. So if you have a different reason for paying cash, let me know because it can't be to end up with more money.
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@felix1177 You're missing the point again. We each have $300,000 to start. You pay cash for the house and I get a mortgage and earn a guaranteed spread. My mortgage payment is being made by the investment and the difference is my spread. The difference accrues compound interest until retirement. I will have 6 or 7 figures more than you at retirement in a guaranteed and predictable environment, just from this $300,000! You say that you will pay yourself the mortgage payments, but you forget...
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Pretend we had the exact same scenario during those few years when you were paying off your mortgage. I made the same payments but to myself. We both lose our job at year two: who can whether the storm longer "when life happens"? I could easily be in your situation by simply writing a check to the bank but you could not be in my situation.
mountainfinancial 6 months ago
Felix - again, great point but from the banks perspective. Liquidity always wins "when life happens". Money being dumped into a house is not liquid. The person with the cash always beats the one without the cask. Your position is far riskier than mine...I can prove it with simple math NOT concept.
mountainfinancial 6 months ago