When is a Mortgage Considered a High-Interest Debt?

When is a Mortgage Considered a High-Interest Debt?

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[skaya]

I love the content of the channel, would love more international advice but understand that it’s for us market, that’s what holds me from buying the course.

For example in my country a 30y mortgage is in the range of 12-18%

So advices like invest first mortgage after is not feasible

[jaquevius]

Age matters as well. I paid my mortgage off at 51 yo because I was already maxing the Roth 401K x 2 (wife and I) + backdoor Roth conversion x 2= ~75 K q yr. Rather than invest post tax, I decided to get completely out of debt....and I can tell you from a personal satisfaction/ piece of mind perspective, it was absolutely the correct decision. I no longer stress about spending money on things I previously would have seen as a bad investment etc. It's made my marriage better because I've always been a planner, which means it was hard in the past not to question certain "unnecessary" spending. With zero debt and a positive cash flow, I can finally relax and feel like I've planned for the future, so why not enjoy the day, if you know what I mean.

[xzygy]

I appreciate the perspective, and you're probably right. But damn did walking into MY home for the first time feel great. Might be a mistake, but one I'm very happy with.

[blairkinsman]

In the long term, I agree .. provided I have the funds to cover the increased monthly payment (about $1500 a month for me - primary residence and a rental property - 2.75 -> 6%) and fund the rest of life .. which I don’t .. In Canada there’s no such thing as a 15 (or more) year fixed mortgage. I already had about 10% of income going into retirement, which I was going to have to slow down on to make the higher mortgage payments. Given that the price of housing was falling (7.4 ~ 15.6% depending on what I read), I couldn’t see working harder to pay more money for an asset that was depreciating .. I’m 60, wanting to retire at 65, so time was not on my side.
So when the offer to sell one house was on the table, I took it and paid off both mortgages .. now I’m funding my tax deferred investment at > 30% of income .. we will see what happens

[jordandowland]

Best wishes for your health and success in the new year gentlemen.

[thoryan]

If it wasn't for the bear market, then in my opinion anything 7% or higher on any type of loan is high interest. But because of the bear market, I do agree that it is reasonable to expect a higher rate of return on dollars invested during this specific time period. 10% or higher on any type of loan is high interest in any environment, in my opinion. The FOO has its own guidelines, these are just my own personal interpretations of what high interest is.

And while not referenced in the FOO, 4%-7% is what I consider medium interest. Low interest debt to me is debt that should be paid at the minimum payment no matter what (except maybe soon before retirement), medium interest to me is debt that can be paid off early but does not have a sense of urgency, high interest debt to me is debt that must be paid off aggressively as soon as possible.

Nothing to do with the FOO, just how I perceive debts of varying interest rate levels.

[tjc]

How does this translate into putting more than 20% down to reduce mortgage vs putting liquid assets into non-retirement investments? Same idea, stick to 20% because assets will outperform the 6.5% interest rates?

[Azel]

Thanks, I'll leave my 700k portfolio in a market instead of paying off my 700k mortgage then... been struggling with this one

[hanwagu]

the technical answer is opportunity cost: if mortgage rate is higher than what you can earn on investment. 2.375% 30 yr fixed last year, there is zero incentive or argument to pay off early.

[anniealexander]

I purchased my first home at 19 years old. It was 2 single family homes that a friend of the family was trying to get rid of. He originally lived in one home and built a small two bedroom beside it for his mother in law. He made them rentals after his divorce.

I was young and they needed work. I cleaned, ripped up carpet, painted, mowed a lawn that looked like a jungle.

The property came with an existing tenant in one home. I lived in the other. At first, the tenant paid half the mortgage, a year later, the tenant paid 65% of the mortgage.

Two days ago, my daughter said you paid so little for homes that are now worth hundreds of thousands of dollars.
I was young and didn't know much about investing. I just wanted a home and needed help making the payments.

When I saw the for sale sign in the yard, I thought it was for one home. When I called the agent, he told me it was both homes as a package deal. I let him go. My mom Said why not buy both and rent one.

[RyanDD]

From 2/15/1998 to 2/15/2023 spy annualized return was 5.7% percent. In hindsight, it would have been better to pay the 6.25% mortgage off early.

[chrishayes]

The thing I dislike about paying extra into a mortgage is how illiquid that "investment" becomes. Now if you're contributing 25%+ to your tax advantaged long term savings and have 6 months(+) of emergency and nearer term expenses covered then I can see where paying down a 7% mortgage could look appealing especially if adding more stock exposure beyond your 25% just makes you a little nervous from a risk appetite/tolerance perspective.

So with all that said, in FOO terms, I would not consider 6.5%ish mortgage at the "high interest debt" step 3 of the process but more at the step 6/7 phases. And seriously interest rates aren't permanent, maintain good credit and be ready to refi once rates come down again.

[nikolausgerhart]

We need a “Brian Buys a house in 1998” case study with all the visual demonstrations… maybe add fictional Bo buying a house in 2010ish for contrast.

[jakeshota]

Great video I agree that choosing where to invest your money really depends on the rate of return.

What is the place or what are the options to invest in a market tracking investment that reinvests the dividends so I could get that 88x return? I don't want to try to beat the market, I just want to set it and have it grow for retirement.

[martinsb]

At 30 I wondered about this a lot.. I paid of my last house but I bought again and decided to put 200K towards the house. 165k loan at 6%. I have the money to pay it off but I'm still "training" the wife to learn about investing and getting permission from her to put it in the stock market without her being emotional. Sure, the opportunity cost is probably crazy right now, but that's why it's personal finance. Once she sees some results in 2-3 years and if rates drop I'll cash out refi.

[delayedgratification]

Dude your first house was at 6.75% sure, but it cost like 60K? Don’t ignore that fact..

[nofx]

You all nervous AF getting that question 😂

[austinvisser]

Hey guys, looking to buy my first home in 2023 at 26. My retirement goal is on track for 100% funding at 55 (if I don’t put another dollar away and just let it sit) and currently save 29% of my gross income with no debt. I have about 56k saved up and growing while I look (I live at home and putting down 20%+). Once I move should I aggressively payoff the mortgage, should I be investing more or should I dial it back and enjoy my life a little more? I really enjoy being debt free from the peace of mind standpoint and investing more than I already am seems like it wouldn’t be serving much of a purpose other than just having a bigger number in retirement. Have to make a big decision here and looking for some guidance thank you, love your content 😊

[anniealexander]

I'm surprised at the answer during this financial climate. Stocks don't always go up. I've sold a bit during the jumps and it was the best decision. I wish I had sold more. For instance, I sold chargepoint at 19.90. It's now 9.50.

I'm mortgage free and it's a blessing. I paid off my first home at age 24. It set me up to be able to invest during the housing crash. I paid $69k for my home. $114k off It's previous appraisal of $183k. My neighbors house on the other side of the park sold for $860k. I'm on a dead-end street but 3 minutes to the interstate out of Atlanta. I have a technical college in walking distance.

People were lining up to buy this home. It's a 3000sqft cape cod. 3br2.5bath plus bonus room above the garage. Family room plus formal living room, dining room plus eat in kitchen. My bathroom is big enough you could put a bed in it. My jetted tub easily hold 2 people. Double sinks closets. Built in and a fireplace.

I got the home because credit froze and banks wouldn't loan on the house. I bought the home with a home equity line with a bank that thinks I'm Dave Ramsey.