I’m not against paying off mortgages. I’m not particularly in favor of it either, any more than I have a general opposition to, or support of, latex paint or front wheel drive.
Dave Ramsey is most certainly in favor of paying off your mortgage. Granted, he does consider it a special category of debt, setting it aside to be dealt with in Step 6 rather than in Step 2 with the ordinary stuff. But it’s still debt, and Ramsey takes no prisoners in his fight against that evil scourge.
Arguing against this is a little difficult because there are certainly cases and situations where paying off a mortgage is indeed the best course of action, and it is hard not to fall into the trap of framing the discussion as always vs. never rather than always vs. sometimes.
One of the questions involved reducing your real estate exposure by buying a house with a big mortgage. I wrote it intending that the right answer be that the size of the mortgage had nothing to do with your exposure to real estate, but as I entered it into the quiz template I realized that there was another argument to be made. And sure enough, somebody suggested in the comments that mortgaging a house up to its full value does reduce your exposure because you have the option of walking away from an underwater house, i.e. one that becomes worth less than the balance on the mortgage.
The idea that you can just send the keys to an upside down house to the mortgage holder (“jingle mail” or more properly “ruthless default”) and be done with it seems to have gained some popularity of late. Apparently, some people are beginning to believe that this is something special about houses. New cars that were bought on credit are usually worth less than what is owed on them at the start. Does anybody think they can reconsider the purchase after a few months and just hand it back to the dealer, no questions asked? Are houses different? Can you just mail in the keys?
In the past week two popular personal finance blogs have posted remarkably convoluted pieces on the relatively simple concept of mortgage interest.
Last Friday Free Money Financeposted an excerpt from The Sound Mind Investing Handbook – A Step-By-Step Guide To Managing Your Money From A Biblical Perspective 5th Ed. (You know it’s gotta be good, it’s in its 5th edition.) The entire post could have been replaced by the following sentence:
If you have the choice between investing with a guaranteed 8% return and paying down your 6% mortgage, choose the investment because it will make you richer.
If you are thinking that my sentence is lacking because it doesn’t explain why you are richer and assumes an unlikely risk-free return, I am not unsympathetic. But my goal was only to replace the FMF post, and that post has both those flaws as well. And a few more.
There was a time when owning the roof over your head was considered an attainable and wholesome mark of prosperity for American families. See, for example, the higher calling for which George Bailey gives up his youth in It’s a Wonderful Life. (In retrospect, George was making sub-prime loans from a dangerously over-leveraged and illiquid bank. It was a simpler time.) Over the decades conventional wisdom on home ownership morphed from wholesome goal to sound idea, then to great idea, and finally to such a great idea that it was practically free money.
Then it all went kablooey, and conventional wisdom started denying that it ever said any such thing. It’s really not clear what mainstream advice on home ownership is right now. Big time gurus like Suze Orman and David Bach (author of, among other bestselling titles, The Automatic Millionaire Homeowner) now spend time cautioning people about the dangerous waters of home buying and contradict, without apology or even acknowledgement, advice they gave a few years back to jump in with both feet. (See excellent article on this at the Wall Street Journal here, and my discussion of Orman’s latest book here.)
So perhaps now is as good a time as any to step back, push aside the headlines of the day, and reconsider if owning the place you live in is a good idea in principle or if maybe renting has gotten a bum rap all these years. Moreover, it’s worth asking if owning vs. renting is a question that should have a general one-size-fits-all answer.
If this is the only personal finance blog you read (which means you are either my wife [Hi Honey] or my buddy Rick [Yo Ricky!]) you may not have seen this video yet.
The video also has it’s own homepage, with a counter reading over 325,000 hits. They accept donations and sell T-shirts “to deal with a ridiculous bandwidth bill.”
Now, obviously, I would never even think of presuming to dispute the details contained in what is now our nation’s definitive account of the credit crisis. But I do have a few little comments.
All advice in this blog is guaranteed to be worth at least what you paid for it, or double your money back. All persons dealing with matters of personal finance are advised to gather information from blogs, books, radio and TV, consult with professionals, discuss the matter with anybody who will listen, and then make their own decision. Because it’s their money.
Dave Ramsey is most certainly in favor of paying off your mortgage. Granted, he does consider it a special category of debt, setting it aside to be dealt with in Step 6 rather than in Step 2 with the ordinary stuff. But it’s still debt, and Ramsey takes no prisoners in his fight against that evil scourge.
Dave Ramsey, Gurus, Housing | Frank Curmudgeon | 
April 22, 2009 2:12 pm | 
Comments (1,134) 
. (You know it’s gotta be good, it’s in its 5th edition.) The entire post could have been replaced by the following sentence:
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