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Over half of Americans say they're not even close to financial freedom
(scrippsnews.com)
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this post was submitted on 24 Aug 2023
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Unless you pay cash upfront for a house, it serves no benefit to pay it off early due to inflation. As inflation goes up your debt says flat but your home value increases as well as equity. With a interest rate lower than the inflation rate your making money on the loan, not losing it. A mortgage is an investment, let it roll for as long as you can. Also it's convenient that taxes are collected within the mortgage rate, once that is gone it becomes a pain.
Yes a mortgage is an investment (which can make a profit or loss just like other investments) but it is also an obligation. With a mortgage losing your job could potentially leave you homeless. That is not what I consider "financially free". If you have a lot of cash up front you could potentially put it into higher yielding investments and make a profit on the difference between yield and mortgage rate at the end of 30 years but that takes some amount of luck and skill with investing. Especially now that mortgage rate are 7%. If you don't have all the cash up front then taking out a 30yr 7% loan for 300k will mean you're paying over 700k for the house with interest included.
Saving up an emergency fund to pay the mortgage if you become jobless should be a top priority for any homeowner. Priority meaning you cut back everywhere you can to generate those savings, until you have enough saved to be comfortable. Once I saved up a 6-mo emergency fund I felt much closer to financial freedom. I can have 6+ months to look for a new job if I lose mine.
The fact that you're not wrong about this is part of the reason housing keeps getting more expensive. So many individuals have their nest eggs tied up in their houses that building more would hurt a lot of ordinary folks.
No benefit? I agree that inflation can make paying a house off early less financially advantageous, but it’s silly to say there’s no benefit.
First to your point, with interest rates as they’ve been the last year or so, it isn’t safe to assume your interest will be lower than inflation. (Mine isn’t, and I bought my house last June.)
Also, removing a huge monthly bill grants freedom in the short-term. Making a mortgage payment every month may mean things like not leaving a bad job or not starting your own business due to fear of losing your house. With that expense out of the way, you can make riskier choices with potential for greater pay off.
And lastly, there’s the mental burden of debt. It’s easier to be happy when you don’t have any debt, so getting rid of it can be a huge boon personally.
So yeah, I might lose a net benefit of a few thousand dollars spread out over the next 15 years if I don’t pay my house off early. But I might miss out on even greater benefits because I’m saddled with ~33% of my take home going into my mortgage every month. I’ll take the minor hit to be debt-free ASAP.
Currently I wouldn't suggest buying a house because the interest rates are high. We refinanced at 2.2% so I don't plan on ever moving. Bought my home at $225K and it's value is $525K now, over a 50% increase since I bought. I'll never see that happen in my lifetime again so I'm sticking here for life.
Maybe not due to inflation specifically, but there are a lot of benefits to being mortgage free.
Such as the simple peace of mind that comes from not having a massive debt hanging over your head.
A mortgage isn't debt, it's free money due to ROI. Rent is debt.