Since we have been talking about mortgages, I thought I would share this article with you by Ric Edelman titled 10 Great Reasons to Carry a Big, Long Mortgage. Here’s Ric’s ten reasons along with my commentary:
Reason #1: Your mortgage doesnâ€™t affect your homeâ€™s value.
This is true. The value of your home will go up or down, regardless of whether or not you have a mortgage.
Reason #2: Youâ€™re going to build equity anyway.
Again, this is true. Equity is built in two ways:
- Through the principal paid monthly
- Through the increase in the value of your home
Reason #3: A mortgage is cheap money.
This is true as long as mortgage rates are low.
Reason #4: Mortgage interest is tax-deductible.
Another plus to a mortgage as long as you can itemize your deductions. For more on this, check out this post from last October.
Reason #5: Mortgage interest is tax-favorable.
I’m not quite sure why Ric listed this separately (maybe because he didn’t want a “9 Reasons…” post). This just seems to be a repeat of Reason #4.
Reason #6: Mortgage payments get easier over time.
This is VERY true. When we first bought our house over 7 years ago, we were strapped for cash. Now our mortgage note is very affordable due to raises. The main thing here is to not buy more house than you can reasonably afford.
Reason #7: Mortgages let you sell without selling.
In other words, you can take out a new mortgage to capture any equity. I’m not an advocate of this.
Reason #8: Large mortgages let you invest more money more quickly.
He’s talking here about making the choice between plunking down a large down payment or a smaller down payment and investing the rest. Again, this is a function of how much the loan is going to cost you. The higher the interest rate, the more advantageous it is to put down as much as you can on the house.
Reason #9: Long-term mortgages let you create more wealth.
Any time you can borrow at a low rate and invest at a higher rate, you can take advantage of the spread.
Reason #10: Mortgages give you greater liquidity and greater flexibility.
Several commenters mentioned this yesterday. This is true. A 30-year mortgage does give you greater flexibility. If you are sick of paying on the mortgage and want to pay if off quicker, simply pay more towards the principal. In fact, you could pay off a 30-year mortgage in 15 years (or less) if you choose but you can’t stretch a 15-year mortgage out to 30 years if you decide you would like a smaller payment.
I don’t agree with everything Ric says but when it comes to this topic, I do agree with him for the most part when it comes to mortgages.
Now it’s time for you guys to comment. Which of the above points make sense to you? Which ones don’t?