I guess it’s the principal of the thing. 
I heard he was Redding a ton about it
I hate being in debt. I really hated having a mortgage where if something bad happened, the bank could take my house. So my advice is always pay off the house. I love being debt free and no longer have any fear on losing my job. Your utility function is different from mine so here’s your grain of salt.
If something bad happened, you could sell your house.
However, my current worry is an earthquake, so…
I understand. I can relate. But I think that it is an irrational fear. Good debt (and the only kind of good debt is a fixed rate mortgage) has a protecting effect on your net worth. Most people are better off building up their savings accounts than by chipping down their mortgages. Liquidity is your friend.
I consider this a ninja’d.
Macaulay duration is a math calculation that captures the following effect: If you owe someone money at a low interest rate, and inflation “happens” sometime in the future while you are paying off the loan, then you get the benefit of having to pay off the loan at the original terms, not at higher terms.
So if the price of EVERYTHING doubled, your housing price stays the same, so it’s like your housing costs get cut in half. It’s like free money. It really is a very big deal.
Yeah, OK, DTNF, you have a valid point.
Depending on what the bad thing was, this could very easily be false. Particularly if you borrowed the max a bank would give you and have a 30 year mortgage and make minimum payments, as is being advocated in this thread.
At least, not without seriously screwing up your credit.
See: 2008
Plus even if it was true… then what? If I’m disabled or I just lost my job because the economy is in the toilet and I’ll probably be unemployed for a while or I need the money for a medical treatment or something, the absolute last thing in the world I want to be dealing with is having to move on top of the other bad thing. Who will lend me money for another house or rent to me if I have no job and bad credit from either a foreclosure or a short sale?
Plus I really hate moving.
I have a LOT of utility in having high equity in my home. I’m fairly certain that I will sleep better when it’s completely paid off.
This has so much to do with your friend’s personal utility function we aren’t likely to come up with the answer.
Some people hate debt so much they’d rather rent and choose from the different housing choices available for renters and risk of increasing rent than go into debt. Others only buy when they can pay cash.
If one is comfortable being in debt, the question becomes how comfortable? One can go high risk/high leverage by buying the most one can afford with a low down payment, floating rates (which tend to be lower) or a balloon (I think this is more common outside US, but don’t know). Lower on the risk scale would be a payment that is a lower percentage of one’s earnings. Fixed rate mortgages do (as previously mentioned) fix one’s pre-tax financing cost, but not taxes(property and income)/insurance/HOA dues/repair costs. One might have other significant expenses/income that vary over time (Child care/education costs or retirement/job change plans) that constrain the part of the budget that can go for housing.
Also previously mentioned is mortgage length. I’d put it like this, the steepness of the yield curve strongly affects the choice between longer and shorter mortgages. If it is flat, then one should take the longer period which gives more optionality due to the general absence of prepayment penalties (in the US). If it is steep, there is more financial incentive to go shorter despite the higher monthly payments.
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Eh, when interest rates are 2.X%, sure.
When my parents bought a house in 1984 and the choice was a fixed rate at 22% or an adjustable rate at 19%, the realtor advised them to protect their investment with a fixed rate mortgage.
They opted for the adjustable and it was a MUCH better call. Not only did the loan start out 3% cheaper, but since they bought at the interest rate peak, the adjustable rate kept adjusting down without the need to refinance. And when a fixed rate is 22% you kinda know you have to be pretty close to the peak.
I mean, not in Argentina, I guess. But signs were pointing to declining interest rates here in the US.
I’ve also thought about getting a 7 or 10 year adjustable (where the rate is fixed for that long and then adjusts) if I thought I could pay the loan off on or before or at least very close to the end of the adjustment period. But rates are so low now that you don’t save much by doing that.
holy Ronald Reagan Batman
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I know, that’s crazy, right? I’m sure it was 19.X% and 22.Y% but even if my father still remembers X and Y … I certainly don’t. I think they were close because he definitely talks about it being a 3% difference between the fixed and adjustable rates.
It’s hard to fathom being thrilled about paying only 19% interest, but that was the reality.
I recall opening up a passbook (i.e. savings) account as a child that had a few hundred dollars in it. Birthday money and my father paid me a pittance to do menial tasks for his business (stuff envelopes for a mailing he was sending to clients, for example). Anyway, for a long time it paid a flat 12% and the interest was credited monthly. If I didn’t make any deposits or withdrawals during the month I could calculate the interest myself.
I think I opened that account around 1985 (age 10). I remember bringing the passbook in to the bank so they could update it for me. (They ran this little book through a dot matrix printer connected to their computer and it would update the passbook with any transactions since the last time you’d brought the passbook in. Sort of the 1985 equivalent of logging into your online account.) Anyway, I was so disappointed when one time the interest was less than I was expecting. The account has started paying less than 12% interest!! It was so much harder for me to calculate! But of course I still did. Then it became a game to see how close I could get to the actual interest the bank credited me.
Sigh… I have been a math nerd for a very long time!
Also, I’m not sure how much of that was Reagan’s fault. He inherited a shit show.
The prime rate peaked at 21.5% in late 1980 before Reagan was President.
There’s a reason Carter was voted out.
Someone who bought a house in late 1980 or early 1981 probably has an even more ludicrous story than my parents, but my parents happened to move in 1984, not 1980. 
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sure, but i hate paying interest. Just hate it
and ur paying interest in today’s dollars
Didn’t the mess start before Carter?
I mean - he definitely wasn’t able to fix it, but I’m not very convinced that Presidents can really do as much to fix the economy as we like to think they can…
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True, I don’t think he is really to blame either. But in the grand tradition of blaming current problems on the incumbent President, he certainly took the fall for it.
Reagan’s famous line was to ask the question “are you better off now than you were four years ago?” and for most people the answer was “no”.
Yeah - the economy definitely helped Reagan.