My Money Blog highlighted this article, 10 Great Reasons to Carry a Big, Long Mortgage, published by Ric Edelman under a section of the website titled Education. I don’t believe that My Money Blog was endorsing this author or article, but simply sharing the information. I’ve included both references only to show how I discovered it.
Before I go any farther, just think about the phrase “10 great reasons to carry a big, long mortgage”. How do you react to that title? Does it sound wise? Does it sound logical? I know what I think, but lets look at some of the information from the article to see if it sheds any more light on the subject.
Never own your home outright. Instead, get a big 30-year mortgage, and never pay it off – regardless of your age and income.
In today’s economic environment, a big, 30-year mortgage is the best thing you can have.
So: Never pay off the mortgage. Reject 15-year loans, never make extra payments, and forget about those biweekly mortgage payment plans.
First, understand that everything you know about mortgages and particularly what you fear about them is wrong. The myths you believe were told to you, bless their hearts, by your well-meaning parents and grandparents. They told you that mortgages are dangerous, that having one means you can lose your home. They told you this because they remember the Depression era, a time when millions of Americans lost their homes.
How do those excerpts sound to you? Wise? Logical? Here is what seems to be the main argument presented- things are different this time. Where have we heard that before? Right around the top of every stock market bubble is when you will regularly hear that phrase. Basically, everyone before was wrong, but now we have it all figured out because we are so much more advanced than those silly little people before us (you know, like the generation of Americans who actually had a positive savings rate).
Still, mortgages are expensive, and you’d rather avoid paying all that interest. That’s why you like the idea of sending in extra cash with your monthly payments. You know that paying off the mortgage early will save you huge amounts in interest charges. Although that’s true, you need to turn that coin over, because there’s another side you have overlooked.
Here it seems the author admits that having a mortgage isn’t a good thing, but wait…now he will tell us why it is. Confused yet?
That’s why owning your home outright is like having money buried under a mattress. Since the house will grow with or without a mortgage, any equity you currently have in the house is, essentially, earning no interest. You wouldn’t stuff ten grand under your mattress, so why stash two hundred thousand into the walls of the house? Having a long-term mortgage lets your equity grow while your home’s value grows.
I don’t think you can compare cash to a home, but lets play along- IF you had ten grand under your mattress, would you go to the bank and take out a loan against it so you could invest it? Now this argument is a bit tricky because stuffing cash under your mattress isn’t really wise either, but you don’t need a mortgage to let your equity grow! That makes no sense at all.
There’s no way you can avoid debt in today’s society. Cars and college let alone big screen TV’s virtually require you to have loans. And you’ll find that mortgages offer you perhaps the cheapest way to borrow.
This one really takes the cake This quote is so funny it got me wondering if this article was in fact an anti-debt satire piece of some sort. Did I read this right- “There’s no way you can avoid debt in today’s society“? I think Visa and Mastercard would love that quote. If you really think this is true, please stop offering ‘financial advice’ to anyone in any way, shape, or form.
Not only are mortgage loans low in cost, the interest you pay is tax-deductible. You can save as much as 35 cents in taxes for every dollar you pay in interest.
Yep! What a deal! If you think that is a good idea then please start sending your checks to me and I will pay you 35 cents for every dollar you send me!!!!
Honestly, that’s about all I can take of the article. Please visit the link and read the whole thing and please tell me where I am wrong because I just don’t see any sound arguments to support the title. Just think about the advice and see if it really makes sense to you. Don’t let someone tell you you aren’t sophisticated enough to understand it- apply simple logic and reason and draw your own conclusions.