AN EMAIL TO A FRIEND
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Please permit me to “pontificate” since I feel strongly about this bit of “whizdom”.
The desire to pay off the mortgage before retiring is based (imho) on a false paradigm and a obsolete meme.
The false paradigm (perception of reality) is that it’s “safe” not to have a payment in retirement when your earnings are reduced. While it’s not “safe” to have any “bad” debt ever (i.e., Macy’s at 21%; etc.), a mortgage is “good debt” (i.e., your living in an asset that will probably appreciate). Isn’t it safer to have a big chunk of cash, “safely” invested, that you can use when needed?
The obsolete meme (framework of thinking) is based on the pre-1940-ish mortgage where the bank could demand payment in full of the whole mortgage at anytime. That’s why depression era folks lost their homes or farms to foreclosure. After the New Deal (I believe) mortgages were not subject to the bank’s demand, so you can never lose the house due to foreclosure — as long as you make the payments.
The argument FOR a big long mortgage going into retirement is that you will have the cash, the house, and a very low tax deductible interest rate (i.e., 4%).
The argument for doing it BEFORE you retire is that you CAN NOT do it after you retire. So if you were to need money, then you’ll have to sell the house to get the cash or take a Home Equity Loan at a higher and variable interest rate.
I invite you to talk to my “finance guy” to get the scoop. He loves to chat with all my friends and relatives who are all broke and don’t have two nickels to rub together. Laugh! The Edelman Group’s philosophy is they to help everyone get rich.
Now I don’t have to rant next time I see you.
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