Safe as houses?

Picture 2Well, I did ask for it, and the first cab off the rank for the ‘diss Adrian party’ is Dan who thinks that one of my favorite posts – Contrary to Popular Opinion, Paying Off Your Mortgage Is The Dumbest Move You Can Make – is ‘ridiculous’. Seriously, thanks for opening up an important new discussion with this comment, Dan:

This is ridiculous. The author apparently believes he is untouchable and will never lose his job, get sick, or die.

You can do all the complex math you want, but the simple fact of the matter is that Risk is the biggest variable, and I don’t see it show up in your equation once.

Don’t be stupid America, and dont prescribe to a system that encourages you to continue owing people money long after you need to.

Pay off your house, free up some income, then pay off your credit cards, pay off your car, and be a happier, less stressed individual.

Hmmm …. paying off your mortgage as a ‘risk management tool’?

Before we even consider why anybody in their right mind would pay off a (say) 8% mortgage before paying off a (say) 19% credit card or car loan, let’s review the substance of my “don’t pay down your mortgage early” argument:

Look at everything that you own as a business: if it’s your own home, separate the ownership of the property in your mind from it’s use …

… for example, even if it’s your own home, treat yourself as your own tenant and figure the rent that you would otherwise had to pay when doing the sums.

Then evaluate the investment against any other investment or ‘business’ …

… but, if you’re still trying to get rich(er) quick(er)?

If you own a home, don’t pay it off … use the upside to help you buy more and more of these wonderful, one-of-a-kind, almost-too-good-to-be-true ’businesses’ …

If you have other sources of income (businesses, investments) don’t spend it or reinvest all of it … use some of the spare cash to help you buy more and more of these wonderful, one-of-a-kind, almost-too-good-to-be-true ’businesses’ …

That’s my advice to you, but only take it if you want to be rich!

But, Dan says that the ‘math’ matters not, you should consider what happens if you “lose [your] job, get sick, or die”. Well, what happens?

If you have paid out your mortgage, your money is locked in the safest bank vault imaginable … all you have to do it sell the home to access the cash. Just pray that the market is an up market and not a down market, when these events outside of your control force you to sell. Or, would YOU prefer to choose the timing? Hmmm …

Of course, you could just borrow some money against the house; but then, aren’t you now putting yourself in EXACTLY the financial situation that Dan wants you to avoid: i.e. “owing people money long after you need to”?

And, even if you still do want to use your Zero Mortgage Bank, what are the chances of the bank actually lending you (or your survivors) any money when you are jobless, sick, or dead?

Oh, and let’s say that you do happen to be unfortunate enough to “lose [your] job, get sick, or die” while you are still in the 10-15 year period when you are well ahead of the 30-year payment curve, but haven’t paid off the mortgage in full, yet? How easy will it be to refinance, or even convince your bank to hold payments for you? Even if you THINK they will, you had better be certain 😉

What do you reckon? Dan’s on the right track? C’mon, be honest … would you feel safer paying off your mortgage early, or letting it ride?

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11 thoughts on “Safe as houses?

  1. I used to be in the mindset that paying off the mortgage early would be the safer option, but now that I have $2K/month extra cash, it makes more sense for me to put it into my new business that makes more than my mortgage interest. The concerns of jobless, sick, or dead are solved by other items besides a paid off home (eg: large emergency fund or alternative revenue streams for jobless concern, short term disability insurance or health insurance for sick, life insurance for death).

  2. I am not sure where I fall on this topic, but I will tell you that almost every multimillionaire whose file lands on my desk has a paid off home (I handle estate planning work).

    I have no clue the order they did it in, or their reasoning I just know that almost every client that lands on my desk regardless if their networth is $5million or $30million (highest I worked on was $100million, but they didn’t become a client).

  3. I think paying off the home is fine, if you plan to be there forever and are looking for absolute security. That should be part of money making 301 (if Adrian agrees!).

    But why would you pay off a low mortgage rate when you’re better off keeping your spare cash as dry powder? The real question, is where are you going to get cash for a business or real estate opportunity when you need it? HELOCs can be cut at any time. The only guarantee is having that liquid cash in the bank, not in the home.

  4. There might be a cultural aspect to this. In Mexico and most of the developing world the motto is: You are what you own. but here in the States the motto reads: You are what you owe.

    Personally, I have purchased my Mexican headquarters near the sea – and paid it off. Now I can move onto the rentals, but the key is that this one is paid off. If I get fired, no problem (Two fish a day lifestyle – and better yet, Baja style). If I get sick, no problem (Two fish a day – and a nurse at home for 4 hours for 25 dollars a day). If I die,(who cares – game over)



  5. @ Charles – A true MM201 attitude!

    @ Evan – Thanks for the Shark Tank link (on your post:

    If I can offer one suggestion: it seems you have direct access to the type of people whom you need to be your mentor. Find an [ethical/polite] way to tap into that resource!

    @ Mike – Evan asked (“I have no clue the order they did it in, or their reasoning”) and you answered (“That should be part of money making 301”) … and, yes, I have roughly $7 mill. – $8mill. of houses (one in Aus, one in USA) and they are BOTH paid for in cash. Why? Exactly as you suggested: MM301.

    @ Luis – And, another great example of a “2 fish a day, baja-style” MM301 strategy PROVIDED that you can still reach your Number by your Date?

  6. Adrian, you make a lot of sense. if your home is paid off, who’s to say the value of this home will be anywhere near what it was or what you need, when you need it most?And not to mention that all that money that is going into the home loan won’t be used to reach your goals.You’ll have to rely on some other source of income to reach those goals, what source will that be?

  7. @ Steve – Well put! Let’s say you paid your home off in 2006/7 and tried to sell or refinance – for any of the reasons stated by Dan – in 2008/9? Tough luck, mate 😉

  8. Adrian,

    After our last conversations about this very thing I was happy to see you post on this topic again. I’m still up in the air on my situation. I think that I have made the decision to keep my current home and rent it out, I’m just not sure what the best financing situation would be. I know you don’t like to give direct advice on what a person should do (and I totally understand that because it should be up to the individual what decisions they make), but would you be willing to give the pros and cons of two different scenarios if they were presented to you?

  9. I’m in the mortgage biz so I think everyone should refinance annually regardless of rates and never pay down mortgage debt :-P. Kidding!

    Adrian, maybe I’m remembering wrong but doesn’t having that much tied up in your own homes ($7-8M) break your housing rule?

  10. @ Lee – Drop me an e-mail to outline the scenarios (ajc @ … glad to help in any way that I can!

    @ Brandon – My current Net Worth is well north of the $7m that I write about here, but my houses still DO break the 20% Rule … so, I am in the reverse situation: I now NEED to take on more finance! A broker’s dream, huh? 😛

  11. Here is where I come down on this one. I will never pay off my mortgage. That is to say, I never pay off my mortgage over time. Simple stated I will one day write a check for the home I will retire in, until that day comes not double up on my mortgage payments, send a little extra each month or even try and pay down the principle. That being said I’m not against other people paying off mu rentals mortgage. It;s a great debate.

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