The goal of owning your home free and clear is usually thought of as the sunniest eventual outcome of the process that begins with buying your house. The vision of the day when you make that last mortgage payment is an attractive one: whether in retirement or sooner, a “free rent” future has great appeal.
So when financial planners argue against the wisdom of paying off your mortgage, it makes for interesting reading. One such planner is Ric Edelman, whose article “11 Great Reasons to Carry a Big, Long Mortgage” presents a laundry list of the possible financial benefits. As one of the nations’ foremost financial advisers, Edelman also has a well-earned reputation for brash presentations (his PBS series made the most of that). And he really does list eleven reasons why “you should have as big a mortgage as you can get and never pay it off.”
Some of the reasons are fact-based—but not really pertinent. For instance, Reason #1 is that your mortgage doesn’t affect your home’s value. True: whether its value rises or falls depends largely on the current market…but that isn’t a reason for or against carrying home loan debt.
The same is true for Reason #2, which is that a mortgage “won’t stop you from building equity…” The logic here is the same: even if you never paid down your home loan’s principal at all, if the expected market value rises (it’s “almost certain to grow in value over the next 20 years”), your equity would grow independently.
More convincing are the remaining nine reasons, leading off with Reason #3, “A mortgage is cheap money.” This will earn head nods from every financial analyst, and it’s doubly true with today’s incredibly low interest rates. It may only be useful to those who have ideas for places where the “cheap money” can produce juicy profits—but what financial planner can’t suggest a few?
The other reasons deal with:
the dwindling real cost of mortgage payments over time due to inflation
the liquidity provided by refinancing (“selling without selling”)
the wealth creation possibilities of money invested sooner rather than later
Each of these can be illustrated by graphs and charts (and believe me, they are).
Whether you are more of the less-owed-the-better mindset or Edelman’s big long mortgage school, one thing holds true in both cases: buying your house is the necessary first step. I can be of immediate value in that department—call me to see what I mean!