READ BOOK Buy Low Rent High: How Anyone Can Be Financially In The Next 12 Months By Investing In Pro
Alfonzo Liebenstein
Even though I thought long and hard about what to put on the list, paying off your home didn't get a dedicated bullet point, just an add-on. Paying off your home may not provide the joy you expect. And if it does provide you joy, it will only be temporary.
In this situation, the kids are likely getting uprooted to a new school system and then lose contact with all their friends as well. That's way too much trauma. It can be avoided if there is no mortgage payment.
READ BOOK Buy Low Rent High: How Anyone Can Be Financially In The Next 12 Months By Investing In Pro
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Then when I read about corruption at the San Francisco Department of Building Inspection and the city wanting to fine homeowners for putting up tiny library houses, I get annoyed. There are bigger issues the city should be focusing on.
When you invest in private real estate funds, you still pay ongoing property taxes. However, the costs are just a number embedded in a spreadsheet dealt with by other people. Therefore, there is no property tax or maintenance stress. All you care about are the net returns as you sit back and enjoy life.
Check out Fundrise, my favorite private real estate investment platform. Fundrise manages over $3.5 billion and has over 500,000 investors. The funds investments primarily in residential real estate in the Sunbelt, where valuations are lower and gross rental yields are higher.
Every time there is a maintenance issue, my stress level goes up, not down. A fixer that took two-and-a-half years to remodel has already experienced a cracked kitchen pipe, a blown down fence, and a mysterious fire alarm, which was hilariously resolved.
I've only been in my primary residence since 2020. However, I've already had to replace a door handle, several rotted wooden deck planks, and fix a leak during a torrential downpour. More maintenance issues will inevitably appear over time.
Although I've never regretted paying off a mortgage early, paying down a negative real interest rate mortgage is not an optimal financial move. The higher the negative real interest rate, the worse it feels paying off a home.
For example, I've got a 2.125% interest rate on my primary mortgage. With risk-free investments paying 5%+, there is no way I'm actively paying down extra principal at this time. It gives me more stress relief to arbitrage the difference and live for free!
However, if my mortgage rate was at 6% and I could only earn a risk-free return of 2%, the paying down a mortgage early would absolutely provide stress relief. But you've got to completely pay off the mortgage to free up cash flow. Otherwise, you're still paying the same mortgage payment amount, it's just the percentage split between principal and interest changes.
Paying down a negative real interest rate or a low mortgage means living less for free, which may raise your anxiety a little bit. However, more powerfully, paying down a mortgage means you could be missing out on much greater investment gains.
In a bull market or an economic rebound, you want as much risk-asset exposure as possible. Therefore, it will feel better if you pay down your mortgage right before a bear market occurs. Of course, timing the market is extremely hard to do.
Luckily, I found an open-ended venture capital fund called the Innovation Fund, which has invested 35% of its capital into artificial intelligence. I plan to invest $500,000 into venture capital funds that have AI exposure so that my kids don't ask me in 20 years why I was asleep at the wheel!
I don't want to miss the boat, which is one of the reasons why I wrote, How I'd Invest $1 Million Today For A Better Tomorrow. Writing these posts forces me to think more deeply about allocating capital.
If you pay off your house, you will feel an elevated level of happiness for maybe up to six months, but probably closer to one-to-three months. After that, you will simply take for granted you no longer have to pay a mortgage. The extra security you feel is marginal because of ongoing property taxes and sporadic maintenance issues.
Since you worked hard to pay down your mortgage, you will feel more deserving of a paid off home. The more deserving you feel, ironically, the less financial joy you will experience. I've written about this in a post entitled, Overcoming The Trough Of Sorrow.
No doubt paying off a home will bring you more peace and less financial stress. However, because there are perpetual taxes and maintenance costs to pay, the financial relief may not be as great as expected.
For example, once you create a revocable living trust and a death file, you and your heirs are covered for life. You don't have to worry as much about your dependents not gaining access to your funds when necessary. There are also no ongoing costs to pay. Ah, that feels great.
Getting an affordable 20-year term life insurance policy felt the best to me partially because it buys me 20 years of security. I'm confident that in 20 years, I will not have any more mortgage debt left. Further, my children should be mature enough to survive independently at ages 23 and 26.
But given I just talked about the importance of permanence, it is logical to conclude that getting a whole life policy (lasts your whole life) will provide even more comfort. This is especially true for those with family members who may struggle with mental and/or physical health conditions.
Yes, a whole life policy is more expensive than a term life policy. For most people, it's better to get a term life policy as I have done. But if you have dependents you worry about and grow your estate to a top level, having a whole life policy may be a better choice.
In retrospect, I probably should have gotten a whole life policy back when I was 30-35. The cash value of my whole life policy would be worth in the six figures by now. As a compromise, I tell myself I did the best I could in saving and investing as much as possible since college.
Check Policygenius if you're looking for affordable life insurance quotes. You can get multiple real quotes all in one place. Both my wife and I got new 20-year term life insurance policies during the pandemic with Policygenius.
I'm just warning you about the potential let down you may feel if you're currently attempting to pay off your home earlier. The harder you work and the more you sacrifice, the less satisfied you may feel once your home is finally paid off.
Based on the comments in this post, I realized something else important about paying off your home. The greater the value of your home as a percentage of your total net worth, the more joy you will feel paying it off. This makes sense given there's more risk at stake.
In conclusion, I wouldn't concentrate all your efforts on paying off your home ASAP. Instead, be dynamic in your financial decision making based on the economic conditions at hand. Diversify your financial moves to help bring greater peace of mind.
If you've paid off your primary residence, how long did the joy last? Or did you feel a let down once your home was paid off? Does anybody regret having a tremendous amount of capital locked up in one's home? Being house rich but cash poor can be stressful.
To invest in real estate more strategically check out Fundrise. Fundrise real estate funds predominantly invest in residential real estate in the Sunbelt, where valuations are lower and yields are higher. I've personally invested $954,000 in private real estate funds to diversify and earn 100% passive income.
nother great private real estate investing platform is Crowdstreet. Crowdstreet offers accredited investors individual deals run by sponsors that have been pre-vetted for strong track records. Many of their deals are in 18-hour cities where there is potentially greater upside due to higher growth rates. You can build your own select real estate portfolio with Crowdstreet.
In US, rate stays the same for the whole amortization period. Still, for old mortgage, it makes sense to pay it off lumpsum at some point as mortgage balance gets smaller. The payment yield will increase. Near the last few years of term, the payment yield can reach as high as 10% to 15% even though the actual interest rate is 3%.
Thanks for sharing Kyle. In the U.S., we also have adjustable rate mortgages, that reset every one, three, five, seven, and ten years. They account for less than 8% of all mortgages. We have more choices.
If you have mortgage and if you are temporarily unemployed for some reason, you need (Loan payment + property tax + maintenance) every month. But if you paid-off your loan, then you only need (property tax* + maintenance). You do not need 3 to 6 months of mortgage amount sitting in your emergency fund (which is usually kept in savings or money market accounts that pay lot less).
Yes that fico score is bull! Its fraud 100%. It makes no sense that after you pay something major off its now a negative when if you pay late its also a negative. So logically speaking they are saying pay on this forever and thats the sweet spot. Incidentally the only winner there is the loan company who is in bed with the fico system.
We left CA in July 2022 and moved to a state with a better cost of living and much lower property taxes. We only pay about $3500 per year on a $750K home. We paid more than that on our home in CA that was assessed in 2006 for $425k. We sold it for over $1.8 and paid cash for our new home and had $$ left over. Leaving CA for a more affordable state has enabled us to semi-retire and look forward to a future that we could only previously dream about. Best decision we ever made.
We have two rental properties in San Diego, and we figure the way we could potentially retire at 55 is by paying those off early and living off the rental income while our retirement funds continue to grow. Would you still suggest FS DAIR or would you suggest doing our best to throw all of our extra into paying off those rentals as soon as possible?
Long story short, I received a second settlement. Rather than paying endless games with the mortgage company, I sold some stock in a brokerage account and used it along with the settlement check to pay off the mortgage company and get out from under their thumb when it came to repairing my house post hurricane.
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