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0 pointsfpgaminer8y ago0 comments

Yeah, same here, mortgage is huge in these expensive areas. But having the house paid off is part of our FI plan. That's probably not true of the more hardcore FI crowd. They believe, rightly so, that stocks are better investments than a house and that a mortgage is basically just free investment money. I don't disagree, but I want to own a home ... just cause. So our investment portfolio is definitely real estate heavy :P I sort of balance it out by having less in bonds and more in stocks compared to the Boglehead's advised ratios (I don't see the value in having bonds for an FI plan anyway, but perhaps I'm just misunderstanding something?).

EDIT: See my edit above; I realized I forgot to clarify that my $24k/yr figure was excluding mortgage.

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jjeaff8y ago

Borrowing on your home to invest is just a terrible idea. You may see higher returns on the aggregate in the market but doing so is a good way to lose your home. Too much risk and like you, I think the small spread (and it is very small) between your mortgage and market returns doesn't even cover the risk premium of the potential to lose your home.

fpgaminerOP8y ago

The idea isn't to borrowing against your home to invest.

Rather, the idea is that after you have your mortgage, you put your extra money towards your stock/bond investments rather than putting extra money into the mortgage to pay it off early.

This is because the interest on your mortgage is quite low compared to the long-term stock market returns (7-8% after taxes/inflation). So your dollars are more valuable there than spent paying off your mortgage.

In other words, if you take two people, each buys the same home, but one pours all their extra money into their home and the other pours it into the stock market, in 20-30 years the one who poured all the extra money into the stock market would have a much higher net worth.

ryandrake8y ago

That 7-8% return is not risk-free, whereas if you have a fixed rate of, say, 4%, any extra mortgage payments represent a risk-free 4% to yourself.

So the person who poured their money into the stock market may have a higher net worth, or they may not.

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pc868y ago

If you borrow against your home to invest you don't lose your home if the investments tank, you only lose your home if you can't make the loan payments.

jjeaff8y ago

Yes, but lets hope your income is not based on investment success and that your job is still safe even in a market crash. Of course, if you have a steady, locked in income from a very safe pension or trust fund, then go ahead and borrow on your home. You don't have to worry about losing it in that case.

But you only have to go back to 2008-2009 to see how well that worked out for a very large swatch of the American populous.

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0 pointsfpgaminer8y ago0 comments

EDIT: See my edit above; I realized I forgot to clarify that my $24k/yr figure was excluding mortgage.

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jjeaff8y ago

fpgaminerOP8y ago

The idea isn't to borrowing against your home to invest.

Rather, the idea is that after you have your mortgage, you put your extra money towards your stock/bond investments rather than putting extra money into the mortgage to pay it off early.

ryandrake8y ago

That 7-8% return is not risk-free, whereas if you have a fixed rate of, say, 4%, any extra mortgage payments represent a risk-free 4% to yourself.

So the person who poured their money into the stock market may have a higher net worth, or they may not.

1 more reply

pc868y ago

If you borrow against your home to invest you don't lose your home if the investments tank, you only lose your home if you can't make the loan payments.

jjeaff8y ago

But you only have to go back to 2008-2009 to see how well that worked out for a very large swatch of the American populous.

j / k navigate · click thread line to collapse