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Risk. Where have you factored the risk? Let's pretend you have your house paid off. Would you borrow against your fully paid-off house at 2.25% interest to put

Risk. Where have you factored the risk? Let's pretend you have your house paid off. Would you borrow against your fully paid-off house at 2.25% interest to put into a savings account at 5% return? The terms involve someone else owning part of your house, and could force you out if they don't get paid. Does that sound like a good plan to you? If you don't think it is, that's risk, but that's what you're effectively doing right now.

leoqa 3y ago
> 2.25% interest to put into a savings account at 5% return Sure, that seems rather savy to me. The only problem is I can’t guarantee 5.5%
- ghaff 3y ago
  At the moment--though it likely won't last--you can get 5% on very low risk investments primarily in treasuries.
  - ajmurmann 3y ago
    I'd be very comfortable putting that money into index funds as well. Even if the market crashes hard, you'll still have more than enough left to pay the mortgage for years during which the market can, and very likely will, recover
ghaff 3y ago
>Would you borrow against your fully paid-off house at 2.25% interest to put into a savings account at 5% return? If that 5% is in treasuries and I can pay off my loan at any time without penalty? I'm not really seeing the downside. (Ignoring any tax effects, etc.) There's arguably some value to owning the house totally free and clear--though even that isn't ever really the case given property taxes, etc.
jandrewrogers 3y ago
This argument doesn't make sense. The money isn't gone, it is accumulating in an account and can be applied to the mortgage at any time plus the interest rate arbitrage. Making extra mortgage payments does not remove any risk. It makes no sense to pay off debt with a significantly lower interest rate than the sovereign interest rates for the currency it is denominated in. It is the closest thing to "free money" as exists. I know several people that could pay off their house any time they feel like it but don't because their interest rates are lower than US treasury rates. It is the financially prudent thing to do. If they wake up on day and decide they don't want a mortgage, they still have that option.
joshstrange 3y ago
Would I borrow at 2.25% when I could get 5% on what I borrowed and immediately pay off the borrowed amount if the 5% slipped? Yes I would, why wouldn't I?

leoqa 3y ago

> 2.25% interest to put into a savings account at 5% return Sure, that seems rather savy to me. The only problem is I can’t guarantee 5.5%

ghaff 3y ago
At the moment--though it likely won't last--you can get 5% on very low risk investments primarily in treasuries.
- ajmurmann 3y ago
  I'd be very comfortable putting that money into index funds as well. Even if the market crashes hard, you'll still have more than enough left to pay the mortgage for years during which the market can, and very likely will, recover

ghaff 3y ago

>Would you borrow against your fully paid-off house at 2.25% interest to put into a savings account at 5% return? If that 5% is in treasuries and I can pay off my loan at any time without penalty? I'm not really seeing the downside. (Ignoring any tax effects, etc.) There's arguably some value to owning the house totally free and clear--though even that isn't ever really the case given property taxes, etc.

jandrewrogers 3y ago

This argument doesn't make sense. The money isn't gone, it is accumulating in an account and can be applied to the mortgage at any time plus the interest rate arbitrage. Making extra mortgage payments does not remove any risk. It makes no sense to pay off debt with a significantly lower interest rate than the sovereign interest rates for the currency it is denominated in. It is the closest thing to "free money" as exists. I know several people that could pay off their house any time they feel like it but don't because their interest rates are lower than US treasury rates. It is the financially prudent thing to do. If they wake up on day and decide they don't want a mortgage, they still have that option.

joshstrange 3y ago

Would I borrow at 2.25% when I could get 5% on what I borrowed and immediately pay off the borrowed amount if the 5% slipped? Yes I would, why wouldn't I?