So, this came to uncle's mind recently. I stopped working for many months already, and I still have outstanding mortgage on my home. While I could liquidate a large chunk of my assets to completely pay off and own my home, I chose not to do it. Why?
1. The rates are still reasonable low compared with what I can get from my investments
2. Having liquid cash/cash-equivalent provides a lot of flexibility vs having a lot of money locked into the walls of the roof over your/your family's heads. As long as you keep up with the mortgage payments, you won't lose your home.
3. Should you decided to change to a different home, you may not qualify for a new mortgage since you have no steady employment income, so you may need the cash to pay off upfront for the next home, and then sell off your current one to get back some money.
4. You can't even refinance your existing mortgage with a different bank as they will require proof of income.
So, Uncle simply reprice my current mortgage with same bank to new rate when it went out of lock-in period. While this means I will continue to need to pay mortgage every month, I retain my investments and allow them to compound. Anything that goes into mortgage payment, I don't see it as expense, but as part of adding equity to my home, which I can get back when I sell it. There is no real need to pay of the entire loan, unless rates shoot up to crazy levels, which is very unlikely.
Fortunately, I expect my current apartment to continue to increase in market value over next 3-4 years, and this coupled with the already paid up equity so far, I am potentially able to sell it in 4 years time and get back at least $1.4M of my money.
Things are very fluid when you have leverage (mortgage). Once you close that opportunity of leverage, it becomes very inflexible and limits what you can do with your finances. it's not just about how much you have in total, but how they are managed. The worst scenario I like to avoid is to be "stuck" and then forced to liquidate things at the worst time/prices.
Yes, I used to think like many others, who always say "pay off your home loan, you no longer worry about your roof, and you have peaceful days!". BUT seriously, is it?
What if you have a full paid home, but you have very little cashflow (e.g. loss of job, and no investments to generate cashflow)? You are staying in your home, so it doesn't generate cash for you! So what do you do? Sell your home? How does that work? Do you then go rent a place, incur expenses of moving, and probably sell your home at sub-optimal price? Trust me, when shit happens, it all happens at same time. E.g. economy is bad, you lose job/income, and property prices all fell also. So you sell your home at the lowest price, losing out potential higher profits, and then get gouged by landlords on rent. Plus, you incur costs of moving, and also created instability for the family/kids by moving around. Your landlord could raise rent after 1-2 years, and you have to move again. You call this "peaceful" days? Is this what you "gain" by using up large chunks of your cash to pay off your home?
I think this thinking has to change. Rates are low and make use of it.
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