Despite the wonderful peace of mind that comes with a free and clear house, the decision to pay a low -use mortgage early is not always clear. If the mortgage rate is low compared to risk -free investment returns, maintaining mortgage and investing excess funds elsewhere is often more logical.
What is the mortgage of the real estate rate is low?
I determine the mortgage for the benefit of the interest as a rate as the rate is at or less than the rate of risk -free return. A risk -free rate can be equivalent to the cabinet bill or bonds you choose, or even the current money market price that you can earn on your money.
For example, if your mortgage rate is 4 % while the money market accounts offer 4.2 %, your mortgage is qualified as a low interest. On the contrary, if you have a 2.5 % real estate mortgage, but treasury bonds for 10 years do not result in only 1 %, then this mortgage is not a low interest because alternative investments free of risk are much lower. In addition, if inflation is 7 % while your mortgage rate is 5 %, you are suffering from a real negative mortgage rate, making your debts cheaper over time.
When assessing if you want to pay the mortgage early, you should always think about the cost of an alternative opportunity to invest this money elsewhere. Financial decisions should never be taken in a vacuum.
In my opinion, the return of the treasury bonds for a period of 10 years is the most important financial number to follow because it is a standard for financial relativity. With this perspective in mind, let’s go to the only good reasons to pay off the low prices early.
Written reasons for paying the mortgage in the low interest rate
Real estate is the category of my favorite assets to build wealth and is the main investment that enabled me to retire early and live more free. I have pushed many of the low -benefit real estate mortgages since I started buying real estate in 2003. Here are the few legitimate reasons that I found to do so.
1) You no longer want to own your home or investment property
The simplest way to pay the mortgage is the sale of the property. If the net value fees in your home exceed the loan balance, the mortgage is automatically pushed into the treatment. There is no need to provide strongly to push it early for many years. The main challenge is the sale, which can take 30-45 days on average.
There are many reasons that you may want to sell: move to work, retire, reduce their size, increase their size, or just want a lower responsibility.
For example, in 2017, after the birth of my son, I no longer want to be the owner of a four -bedroom house that turned into a party home. With four or five young people who live there, my neighbors sometimes complained of noise and reckless behavior. Therefore, I sold the property and spent my real estate mortgage by 4.25 %. Then she prepared her investment to sell the house in stocks, municipal bonds, and real estate for almost equal proportions.
Relief from not being managed by this rent alone deserves not to achieve any additional returns from the returns. Fortunately, the stock markets and private stocks continued to estimate, making it a profitable situation for both sides.
2) You have a specific and better use of your home
Money is stronger when it has a specific purpose. Setting clear goals for your savings and investments makes financial decisions easier and more disciplined.
When you pay your mortgage and home values, your property rights grow. While many homeowners sit on their rights for decades, some may find better uses for that.
Below are some of the correct reasons for using home stocks elsewhere:
- Rotation of capital in a better investment – If the real estate has surpassed performance for years and the category of other assets (such as stocks or bonds) appears more attractive, then it may be decided to get rid of them and diversify. On the contrary, if your home was greatly estimated, but residential commercial real estate was not, you can rotate in the weak performance with the same category of assets.
- Pay the price of tuition fees – If you buy a rented drug at the birth of your child, you can sell it or re -fund it to help finance its education after 18 years.
- Funding your retirement Reducing many retirees and becoming home property rights to simplify their financial resources and reduce costs.
Using home stocks can open new financial opportunities, as long as the alternative investment or the use of funds is well studied.
3) Your real estate exposure has grown very large
Everyone must have to allocate the target assets to real estate in relation to its total net wealth. If the property values rise, you may find yourself an admiration for the drug, which leads to the need to restore balance.
Some common scenarios include: This happens:
- The real estate market for a long time increases your property value that is not commensurate with your other assets.
- You can buy a new dream house before selling your old house, and contract more temporarily than planned.
- The collapse of the stock market reduces the assets of unrealistic real estate, which makes real estate a percentage is greater than your portfolio.
- Inheritance of an unexpected real estate, which increases your real estate exposure.
Try to maintain your real estate customization within 10 % of the targeted percentage. For example, if you aim for real estate to make up 50 % of your net wealth, keep it between 40 % and 60 %. If it falls outside this range, consider selling a property and re -customizing the money.
4) I have been tired of government taxes and local property
With high property values, as well as property taxes. At some point, you may feel that your tax burden is excessive, especially if you believe that the money of the local government is the local government or fails to address the main issues.
While property taxes funded basic services such as schools and public safety, government palaces and corruption can eat confidence. Some homeowners reach a collapse point and decide to sell rather than continue to finance the government they do not support.
What I want to pay for property taxes
For me maximum The amount I would like to pay in property taxes is $ 100,000 per year. Property taxes are public schools, emergency services, and infrastructure – the degree I fully support. But besides that threshold, my recovery is more entirely on the quality of the city of my city’s city already its inhabitants.
If the new mayor rises – it is equivalent to corruption, breaking the drug dealers and violent criminals, and cleaning the streets – I agree to pay more. But if the status quo – is vigorous spending, or ineffective policies – I prefer my money situation elsewhere.
Frustration from paying huge taxes to broken governance
Imagine this: You have paid more than a million dollars of property taxes over the past twenty years. You are proud to keep your home and community. Then, one day, an official in the city of San Francisco slapped a notification on your door king Property – very high. It gives you 30 days to remove it or face a fine of $ 3000, in addition to an additional $ 100 a day for non -compliance.
Meanwhile, drug abusive drug use excessive doses in broad daylight. The retail theft is so bad that the major stores close their doors. The homeless camps grow while city officials are writing down. However, instead of addressing these real issues, the government focuses on the police Grass boxes.
Paying property taxes is one thing. Watching this money is dispensed while the city is deteriorating another.
5) ARM (ARM) is re -seized to a higher rate
If you have an adjustable mortgage (ARM), you may face a sharp increase in the mortgage rate as soon as the fixed period ends. Although for most weapons, 2 % is the maximum increase for the first year for reset.
For example, assume that you removed an arm 7/1 by 2.5 %, and now, seven years later, it is reset to 4.5 %. During those years, I built stocks and increased your savings. Instead of allowing the rate, you can pay the mortgage or pay a large part and reformulate the loan for less payments.
If you choose not to re -financing and stick to your arm, your interest rate may eventually reach the maximum permissible – significantly higher than you feel comfortable with it. For example, by the ninth year, a rate of 4.5 % can jump to 6.5 %, and by the tenth year, it may rise to a maximum of 7.5 %. In a scenario in which the return of treasury bonds remains for a period of 10 years less than 4.5 %, the mortgage payment is likely to be the smartest financial step.
6) It has achieved financial freedom, and it is preferable to maximize the profit
Once financial independence is achieved, you can determine the priority of peace of mind over higher returns. Instead of chasing the gains of the stock market, you may prefer certain that you own your home directly.
If you have enough wealth to conveniently finance your lifestyle with negative income, your mortgage payment can be a rational decision. Even if the shares or private investments offer higher possible returns, the mental and emotional benefits of being devoid of debt may outweigh the financial trend of preserving the mortgage.
For many, financial freedom means converting the concentration from capital accumulation to maintaining capital and enjoying a lifestyle. After all, the first rule of financial independence is not to lose money.
Use mortgage debts in your favor so that you do not need it
In the twenties and thirties of my age, I embraced the mortgage debts to develop my fortune. I funded it whenever possible, and I benefited from the low prices for investment in real estate and other places. I had no choice but to make my money worked harder because I had no much to start with it. It was the most dangerous danger to me and I am grateful for the money that lended me.
Now, in the late 1940s, my concentration turned into simplification. With my remaining real estate mortgage for re -appointment in 2026, I plan to pay it. The market has exceeded the bull since I left work in 2012 my expectations, and I am grateful. At this point, I feel that half of my net value is home money.
In the end, everyone’s goal should be to become a mortgage free while they could not work or can work. When that day comes, the peace of mind is explicitly to possess any financial argument to maintain a mortgage.
Personally, I realize the existential threat posed by artificial intelligence of financial samurai. I am not sure if this site will be present in its current form three years from now, making it completely devoid of debt with a goal worthy of attention. Although the situation may seem sweet and pass, the site has already continued six years after my original goal for 10 years. So, I am incredibly grateful.
We may continue to fight and achieve full financial security when our time comes!
Readers, what are some other convincing reasons for a mortgage mortgage mortgage I did not mention? Have you ever regretted a low -use mortgage? If so, what was your greatest regret?
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