Interest rate arbitrage. If you have $2M liquid net worth, you have access to investments that will perform much better than the ~4% you're likely paying on your mortgage. If I can make 6% on $400k vs the 4% I'm paying on said mortgage, why wouldn't I pocket that extra 2%?
> If I can make 6% on $400k vs the 4% I'm paying on said mortgage, why wouldn't I pocket that extra 2%?
That's a huge assumption. There is implicit risk in debt: you might not be able to make payments due to you losing income in the future. If your income is gone, your investments might not be worth as much either, so those might not cover your debts.
There's also peace of mind. There's a psychological effect of having and paying debt.
Laws may protect your home from being seized to pay for a judgement against you.
Around here, all the doctors have big houses and nothing else. As soon as they pay off the house, they upgrade. The goal is to have the primary residence be the only significant asset. It's the one thing that can't be seized to satisfy a normal lawsuit judgement.
Could be tied up in investment accounts (401k, 529, etc).
Don't forget that the 2 million net worth includes some of the house, and you can't pay off the house with the house and still keep it. ($2.4 million house - $400k mortgage = $2 million net)
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[ 2.0 ms ] story [ 47.1 ms ] threadGot 7 lambos.
Assets - Liabilities = Net Worth
2. S/he won’t be paying early payment penalty.
That's a huge assumption. There is implicit risk in debt: you might not be able to make payments due to you losing income in the future. If your income is gone, your investments might not be worth as much either, so those might not cover your debts.
There's also peace of mind. There's a psychological effect of having and paying debt.
Around here, all the doctors have big houses and nothing else. As soon as they pay off the house, they upgrade. The goal is to have the primary residence be the only significant asset. It's the one thing that can't be seized to satisfy a normal lawsuit judgement.
Don't forget that the 2 million net worth includes some of the house, and you can't pay off the house with the house and still keep it. ($2.4 million house - $400k mortgage = $2 million net)
Own house ($50,000 [sic]) no mortgage
0 debt
1k savings account
$50,000 in 401k
$40,000 in index funds
Was a math teacher until 3 years ago - now web developer & data scientist
Net worth: ~1.5M USD, all invested in index funds
Happy renter, no mortgage