Is Paying OFF Your Mortgage Early a MISTAKE? / Ask The Money Nerds

if you go into a bank right now you're getting like a quarter of a percent and they're charging three think about that if you could buy a piece of real estate right now for 250 bucks a month and charge rent of 3 000 that's what the bank's renting your money for right now isn't that insane you know my son asked me today how do banks make money and i'm telling him and i can just see he's just thinking what in the hell dad that you know this is the system we're relying upon and i was telling him this is why we're building a family bank we don't want to rely on the banks we want to start financing things ourselves at preferred interest rates for our family members and have underwriting so there's still lessons and not just anybody gets money for any reason and can default money can be complicated let a nerd help you we're here to demystify the complex nature of money by getting you answers from financial nerds and whiz kids welcome to ask the money nerds a weekly segment of the wealth labs podcast where we answer your most pressing money questions alright i'm considering paying off my mortgage yeah it's true i've saved the money but is that really the best decision i want to talk about the pros and cons what are the risks the benefits the potential downsides or even upsides i'm really wanting to decide what to do and i brought multiple time author wall street journal best-selling author 19 business selling person wonderful human that is an inner circle trusted advisor and has won the money game already so i figure it would be a great conversation for us to have back and forth and and stoba can just poke at us and make sure that we're making sense and you know ask questions to clarify hey rich what's up man you're right good to see you brother zig zag principal bootstrap business toes turn purple legacy most important yep and so you know done with the eagles stuff important stuff yeah that you gave me a book called the second mountain and now you said you've been on the third mountain yeah so yeah that's not even written about by that guy only for a mountain yeah so yeah i mean i'm really i'm really considering this i'm really thinking okay like here's my concern yeah paying off the mortgage first and foremost ties up a lot of capital it does and some people will say but you could get a line of credit against it the problem with that is in credit crisis they'll cut that line pretty quickly like they did in 2008 2009 2010 and i think we're heading for that pinch the real estate market's been really running up um so that's that's one consideration second is i get a three percent mortgage right now if i refinance three percent so stop tell us about the cost of money so when you talk about cost of money you talk about the best and the highest term or long-term return that you can safely get and i i like to talk about it from the sense of like a credit card and the interest and when you pay a dollar on a credit card with 22 interest you're actually paying a dollar 22. right so if you want to transfer translate that to your home situation go ahead and do that it's only costing me three percent rich well i i guess but here's here's my big concern all right they're putting so much money into this economy right now with no value just putting it on computer screens yeah and what that means is every year my mortgage is gonna feel cheaper and cheaper because inflation is a friend when you borrow money it's a foe when you hold money and so my wife doesn't care whether we pay it off or not because she says this isn't our final home that we're going to stay in you know we're we're gonna eventually move when our kids hopefully move out of the house it depends on how good i'm doing as a father on on how soon that happens rich you know they're 13 and 15 right now but but we plan on staying there for a little while the payment is extraordinarily manageable i've got the cash but if i if i look at the other opportunities with that cash right now that i could safely do something with yeah i feel like my cash value is outperforming three percent without any risk number one number two i get access to that cash if it's in my cash value i could always pay this off a year two three years down the road if i really choose to yeah but it is kind of nice not to have the hassle yeah left hemisphere right hemisphere logic you're going through lots of logic with me uh for an entrepreneur for me personally i couldn't have been a real successful parallel entrepreneur until i had that security and stability so a lot of that is the right hemisphere it's it's actually the more lucid the more thoughtful the more creative part of our brains and so you're right there's no logic to doing that and ask me how happy i am i've done it how happy that you did it it even went beyond that because we paid off all our real estate so as that rolls in it makes no sense as a matter of fact all my friends in order to stay here you're i won't swear but they said you're pretty crazy here yeah crazy very much so thank you for putting words in my mouth there you go well the place we're sitting now i don't have a mortgage on i paid cash for this yeah it's a legacy play i don't really ever see selling this and so it was just but the house because i am looking at selling it now here's here's my concern too is i just think there's gonna be huge opportunities yeah i agree and if i tie up that capital i might miss out on those opportunities see the predecessor to my uh my council garrett though because we've talked a lot about this in the past this is awesome always make sure that you have your cash flow ready right i always maintain at least six nine months a year of cash flow and i have cash on the on the on the side so that when the opportunity comes you can strike but just to have it there just to be ready to pounce i mean i thought this thing already would have tanked i'm just totally shocked already i mean i how you can take a a car a beautiful ferrari disassemble it throw it out on the front lawn and say it's worth more than now than it was before it was a vehicle it escapes me but at some point the market will have to correct and there will be buying opportunities but i would still contend that at least my we did this thing called a knee test entrepreneurial appetite test i turned out to be the least risk tolerant of anyone that i know and so it actually enabled to me to be very very effective by removing and mitigating that risk and that concern and just hey my kids aren't going to starve my wife is not going to be left destitute it's covered it's locked okay now let's go play big so for me it's a it's a freedom enabling thing as much of a logic thing and i think you can actually play both i think it can do both one of the things people will say on the comments of some of our other videos is once i paid off my mortgage my finances exploded my investments are doing great and i'm like whoa let's just think and break that down logically if your investments were that good paying off your mortgage actually slowed those investments down true and you would have paid your home off faster if those legitimately were getting the returns that they said yeah because sometimes people go they have an up year and they get remembering the up year they forget about the down year three years ago and that that wiped out some of that return and so what they're quoting isn't reality it's kind of like a business owner talking about revenue instead of profit sometimes people have a short memory on the losses and they have a long memory on the gains because it's a little bit more seductive when you're talking about it at a cocktail party or wherever it might be so i'm i'm i'm legitimately in a place where i don't know that i want to pay it off but i kind of want to have a goal to pay it off because look my income was down last year rich because i didn't speak on a single stage yeah i mean i did through zoom and things like that but i didn't i i mean usually i'm doing 24 to 30 gigs that way and that generates a lot of interest in our services and you know that that generates fees that way so but i still live the same lifestyle for the most part from home more than on the road you know but fortunately i had the cabin here um but i but i watched a year where people struggled and i didn't have concern because i had the cash now if i would have been putting extra money into that mortgage and then all of a sudden this hits and i'm only a year and a half away from paying that off i'm in a risky place because now i've got all my capital tied up in a mortgage right that didn't lower the payment if i'm on an amortized loan and yet i'm close to paying it off so i like keeping control of my cash over time and then choosing to pay it off which is the situation i'm in right now is should i pay it off yeah well i think that it really is a risk threshold tolerance and i would uh agree totally with you you've got to maintain a buffer as like when i was driving up here to your cabin it was a little icy it was a little slippery i gave a little extra uh buffer maybe that's where it's good because my wife uh drove off the road uh just two weeks ago not good during the snowstorm so i'm going to run we've got to keep a little extra buffer right but i will also say when you're getting ready to attack i think your whole mindset you play more in flow at least i do and i think it is an individual personal uh decision i think it's really dangerous and that's the thing i love about your killing sacred crowds concept is is you can't tell someone how to invest it's what your investor dna and i think that is similar with risk threshold for me i i couldn't have been successful to the level that i was if i hadn't have had that stability and then i could play big i could play fluid lucid and play in flow and so i think it really isn't just a matter of the logic and the numbers all tell me jeez when i was in college i did compounding interest and i guarantee you i was a multi-millionaire by the age of 32 according to those but it didn't quite turn out that didn't quite turn out that way did it no it never does and and so as i as i look at this choice and i look at this decision i know that i'm always paying interest whether i borrow and i know precisely what i pay because it's it's on the amortization schedule it's the interest that they tell me is fixed or the harder one to see is the interest i give up by paying cash because i don't get to earn interest on the money yeah that one's not as obvious but i mean as i've discovered i put a good amount of chunk from one of my last sales of my companies into bonds how did that turn out not so well just kept going down right so there's actually an argument that that actually your mortgage depending on your investment profile may be the best thing to do is to pay off your home for a lot of people it tied it up but i don't know what is your interest rate what do you learn well if you don't know how to invest don't know where to invest don't know how to mitigate or manage risk don't know your investor dna the best thing you could probably do is pay this off but one thing i would warn people of there's a level of arrogance that comes with a lot of people that pay off their mortgage there's people that like absolutely judge those that haven't paid off their mortgage like somehow they're superior to them that's not you at all but i'm talking about some of the comments we get and i feel like dave ramsey's a culprit of that yeah you know like that pushes it like people if they don't agree with me that you pay off your mortgage they're an idiot well we got to consider peace of mind we got to consider economics we got to consider cost of money that we just talked about we got to consider the impact of inflation we got to talk about access and liquidity and we also if you're married how does it impact your partner your wife really felt comfortable with you paying that off well i felt my wife than cheating right and if my wife was saying hey this would be a really big deal then i would just do it yeah but one i think you're gonna know i'm ready to do it you hit the precipice and so your profile's a little different maybe you're a little farther along and maybe you know you have a little stability elsewhere but when i left into the wild wild west of entrepreneurship it was cowboys and indians it was it was cold snow outside so i really do think it's an individual choice but i think it's not fair also to just crunch the numbers i think you've got to look at this what gets me in flow and lucid and i do i see a lot of people right now that aren't having return on investment greater than a lot of people because if you go into a bank right now you're getting like a quarter of a percent and they're charging three think about that if you could buy a piece of real estate right now for 250 bucks a month and charge rent of 3 000 that's what the bank's renting your money for right now isn't that insane it's such a massive spread and you know my son asked me the other day how do banks make money and i'm telling him and i can just see he's just thinking what in the hell dad that you know this is the system we're relying upon and i was telling him this is why we're building a family bank we don't want to rely on the banks we want to start financing things ourselves at preferred interest rates for our family members and have underwriting so there's still lessons and not just anybody gets money for any reason and can default so but it's amazing how we have these intermediaries in our life that you know they talk about oh you know you could get a percent or two percent well they're going for a hundred percent or more or even way more than that because even if they just give you one percent on your money and they charge three percent yeah it's a 300 markup yeah that's substantial mark-up and that's why they give you a lollipop when you go there so that you know you're a sucker dum-dum like i literally went to the bank this week i took a picture of the dumb dumbs that were there and i'm like oh they don't have a product but i do get a have a dum-dum sucker when i leave you know to remind me that why are there why do they have rooms for their money why is every building they have bigger than any house that i that i see that anyone has and it's like you know like we can really start cutting out the middle man but at the same time responsibility is an important piece and we have to let go of antiquated rules there's people that are being handed down from generations this old mythology that if you have your bank or the house paid off you could never lose it now here's the thing in the great depression there were callable notes so you might have a five thousand dollar mortgage back in the 20s and then all of a sudden the great depression hits and the bank says we need our money right now because there's a run on the bank and you go i don't have enough so they just take the home and that happened to a lot of people and think about the pressure and the stress and the pain that caused that that's handed down to generations right now that they're actually erroneously believing that the bank can come and take that house from them not unless you have some balloon payment due at a certain point but most of them if you're a 10-year 15-year 30-year or any of that you are locked in as long as you make that payment they cannot take that home from you and ask for that money up front like they used to but that's where we have a lot of the scars and the wounds and a lot of the misinformation so i want to be crystal clear if someone wants to pay up their mortgage i would not want to talk them out of that but i would definitely talk about the methodology to get there the objective is a noble objective because it's their personal preference and personal finance should be personal but the methodology to get there just giving the bank extra money doesn't make sense yeah shortening your term on your loan doesn't make sense because now you have a forced higher payment and you have more risk of what i would call equity jail you have money tied up in the equity of your home and if you have a financial turmoil or situation or credit crisis that the banks face you might not be able to get access to that money when you really need it because banks love to lend money to people who don't need it you don't need it right now a bank would lend you money in a heartbeat rich because you have paid off real estate which is a ton of collateral you've got businesses that have been sold you've got a good net worth sure they'll lend to you all day long but if you're in financial catastrophe or you lost your job i don't care how good of assets you have they're not going to lend you the money and this is the notion people have to understand the banks are making the rules and they're mitigating their risk and people just play into that by going to bi-weekly payments well that means you just make one full extra payment per year so sure over 30 years you might shave five years off your mortgage but if you just put that money in cash value you might shave off seven years on your mortgage and have access to capital along the way we have to be more critical with the thinking and stop listening to the institution that's telling us what to do and sometimes when i talk about this people go oh does garrett work for the banks no i'm saying if we didn't have to use banks at all all the better yeah but let's utilize them not be used by them is what i am saying if you are using them i totally agree i totally agree with that i think both of us stand on the same side that you got to make sure that you maintain your cash flow i think there's another part of the equation this i had a number of uh close friends that have been in retirement had put all their money in in mutual funds and such and uh when the market crashed the first time with this it's like oh man there goes like 10 years i'm out 10 years they're losing sleep they're frustrated okay so in that situation are you better off to actually you know not i mean i it does it honestly terrifies you if i had a choice stock market or pay off my mortgage i'm 100 percent pay off the mortgage you've got 100 of the time and i think that's that's the key point i was going to make is is you better have another financial interest investment that's actually doing better than paying off your home and right now honestly i've been on the sideline and i'm very comfortable with i'm having to get all panicky and it's like i watched the market go up and i'm i'm not having a lot of angst about it i don't ever watch the market i get angst on crypto i'm not gonna lie but i don't get angst on the stock market well maybe even more volatile but much more volatile but but i do think that we've just gotta invest our investor dna and so home can be a great investment but the one thing i'd never argue with is always maintain that buffer always make sure that you put a good buffer and right now i don't think it's three months i don't think it's six months i don't think it's nine months i think you could have at least i agree two years agree but that could be the cash value of life insurance that could be in cash inside of a bank that could be in some coins in a safe and that could even be one month of crypto yeah and especially like i'm i'm moving more towards usdc which is a coin-based crypto that's backed by the us dollar so for every dollar you have in there you have a dollar of us dollar backing it so i kind of like that because there's a chance that if the us government does business with that usdc you actually make a spread because of limited supply and demand or simply you can get some interest on coinbase by being in there which the banks aren't really paying much on that so something to consider yeah one thing i'm interested in is like how you had the conversation with your wife about whether to pay off the house or not was she in a similar lane as you or was she did she feel more angst and anxiety around having a mortgage did she want to pay it off like how similar were you and you're very similar okay yeah very similar uh my wife and have this beautiful relationship of my best investments just go create a company make lots of money and then i hand it to her and she goes and buys real estate that's a great partnership man no it really is and she loves to pay him off and i i'm very comfortable and i recognize it isn't always and it's not the law you're where you want to be well not only where we want to be is is we've eliminated all stress and anxiety there's how much is there when everything's paid off none is it smart no is it delightful how delightful and that was the point is we found a model that were for us everybody has their own uh threshold for risk everybody has their own investment model for us it was brain dead stupid from a logic standpoint but there's not a lot of people arguing with me now how it works there's not a lot of people arguing because all that property is appreciating there's no debt on it there's a cash flow monthly that's very very nice i don't need to be having a lot of stress and i can go sit in the beaches of los cabos and not have any stress about much of anything and so i it took a long time to get there but you know what i actually think everyone has got to look at their own level of stress but the one thing everyone must do is maintain that buffer and if you don't have two years i would say don't freak out get three months and then bold on to it and progress so many times people trying to accelerate and quickly and that's when you get in trouble because they start making really stupid investments and i've had a number of friends when i wrote zigzag principle what prompted that whole thing was the big meltdown of 2008 2009. i had at least five or six friends that had been financially independent done done done just like that not done not done going back at the age of 45 50 and for the first time in 10 years having to go uh uh punch a glock that was a hard adjustment so don't over invest i don't think well both of you have great marriages you can have good conversations with your spouses for someone who's in a situation where they're deciding whether to pay off their mortgage or to hold on to it but maybe spouses are in different places on what to do do you guys have any advice on like how to navigate that conversation hear the other spouse out um i mean like i said if my wife was adamant about it we'd just pay it off so that's the thing because it's not worth the stress because we're creating stability because it's a partnership and i don't we don't have to make every decision based upon economics we can make decisions based upon peace of mind and i believe that the greatest return is the investment in ourselves and our ability to create value and if something derails or distracts us from that well if i if i would have made two percent more by not paying it off and end up with a hundred thousand dollars you know ten years from now versus what if i could have made 500 000 by not fighting with my wife and not feeling stressed and feeling free to create not being stifled by that kind of you know that that argument that's regularly going to happen because people have different money personalities that's the bottom line and we usually marry someone with a different money personality than we have yeah so it seems like even paying off the mortgage if one spouse is in that position and doing that in a way that fosters more harmony and peace and less stress in the home it sounds like a major win to me i've got two comments here okay there's this guy that i know and i quite like him most of the time he wrote he talks about this thing called soul purpose and uh does he have long hair yeah something about that you know and end of the day money is nothing more than a vehicle that allows us to express our sole purpose and so i i actually think we can't lose sight of that and then second of all a happy wife is a happy life and so uh i think we've got to seek to understand most the time when there's a disagreement it has nothing to do with even the mechanics of how it's going down it has to do with some internal insecurity or something going on and so seeking first to understand before being understood so i think that that actually as i've got a little older and and luckily a little bit more mature i've learned that when there is a contention like that the important of uh seeking first to understand what the root of that insecurity is coming from and then once you understand that there's tenderness and you can always come to a conclusion yeah it's the art of perspective taking taking the perspective of another person to then have empathy or understanding towards them i have one other question you were mentioning like having a line of credit against your home the heloc the home equity line equity line of credit um when is it a good idea to to get that i think it's good especially if it's not being charged if you don't use it sometimes there's an annual fee on that so you gotta look at it like is that worth the insurance policy of having access to cash um i've thought multiple times about getting a line of credit on this property i just haven't done it because i have other liquidity and it would be the last place i would want to go and right now i don't really enjoy the process of getting a loan from a bank it's just kind of comfortable always another thing we need a letter here and you know i'm like okay like i i make more than what i owe on my house in a year and you're gonna make me jump through a thousand hoops like anyone else so so i mean if it's easy to do which sometimes we have banking relationships with portfolio banks that make that much easier but i think it's if there's no fee to it might as well get it you know unless you're a reckless consumption we've used tv locks all the way through we have one on fire we have one on our cabin and uh you know i think there are some really toxic caustic bank relationships i'm very fortunate that my little brother uh married into a family that owns a bank and so a beautiful wonderful flowing working relationship with our bank and we've used the heloc time and time again i mean we found the home that we're living in now my wife had always fell in love they were starting to lose it bam we came in and within a week purchased it and the way we were able to do that is just drawn on heloc and we use it though as a quick to cash investment vehicle not as a long-term financial instrument so i think having a heloc is a great idea great idea well thanks uh now you you know you get to make your own decision here for yourself if you have the cash what your process is to get there whether it makes sense or not from a peace of mind or economic standpoint turn your thoughts into profits and build the life you love want to master your money want to figure out the things that you could do to improve your finances click here and check out more videos like this on money matters

Channel: Garrett Gunderson

Views: 5,231

Rating: 5 out of 5

Keywords: Garrett Gunderson, Wealth Factory, Wealth Building Strategies for Entrepreneurs, Financial Freedom, Financial Independence, Getting to economic Independence, what would the Rockefellers do, business, success, entrepreneurship, Is Paying OFF Your Mortgage Early a MISTAKE? / Ask The Money Nerds, Is Paying OFF Your Mortgage Early a MISTAKE?, Ask The Money Nerds, mortgage payoff, should you pay off your mortgage early

Id: 4FqGttU1apE

Length: 24min 14sec (1454 seconds)

Published: Mon Feb 15 2021