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In times of uncertainty and volatility and especially inflation, if you have enough money to pay off your mortgage, you might not want to actually pay it off.
by daydream 4y ago
In times of uncertainty and volatility and especially inflation, if you have enough money to pay off your mortgage, you might not want to actually pay it off.
Assuming you have a fixed rate mortgage at a low interest rate, not only will the value of your debt be inflated away, but you retain optionality. Meaning you can use that big chunk of money as a hedge against a job loss or other negative event, you can use it to invest as your see opportunities, etc.
Of course the flip side of this argument is if you do pay off the mortgage, you get a guaranteed rate of return equal to your mortgage interest rate.
- oceanplexian 4y ago30 year fixed rate mortgages is specifically an American thing. Not sure this is the case in all European countries but I’ve heard that they typically have much shorter terms and/or variable rates.
- sofixa 4y agoAt least in France 15-25 year fixed rate housing loans (technically it's not a mortgage because you don't guarantee the loan with the housing directly, there's an intermediary insurance to guarantee that will fight you over the housing if you stop paying) is pretty much the norm.
- v-erne 4y agoPoland is great example of this - fixed rate mortgages are almost nonexistent here. When inflation hit and the Monetary Policy Council rose intrests rates by 6,5 percent it doubled monthly installments of many people. And rates are still off by 10 points from real inflation. If they would rose those rates to the real values it would probably bankrupt hundred thoused people here.