Has anyone ever heard of this investment philosophy before? It’s kind of weird, IMO.?

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Believe it or not, until the recession began in 2008 I had never really heard of this before, but supposedly a lot of people follow this philosophy.

Apparently, back before the financial crisis, many economists told people that it was a bad idea to pay off their mortgage and that they should constantly be refinancing and borrowing against their house. They said that mortgages are good debt and that you could deduct a portion of the interest on the home loan. Both of which are true.

However, I don’t understand the logic behind that. Why would I want to be in perpetual debt to a bank? And yeah, you can deduct some of the interest off of your taxes, but that doesn’t beat not paying interest at all.

Maybe it’s just me, but I don’t like debt…. any debt. I pay off my debts as quickly as possible because I don’t believe in paying interest to a bank. Every time I have to pay interest to a bank I think to myself “That’s XXX dollars I just gave away for the ability to be in debt”. I pay off my credit cards in full every single month.

IDK, what do you think about this logic? Is it good? Is it bad?

There are a lot of people who I work with who are regretting this decision now. I bought a penthouse 6 years ago and I had it paid off in 5 years (on a 30 year mortgage). And when the economic crisis hit and I lost my job, I didn’t have to worry about making mortgage payments, just paying the taxes.

1 Comment
  1. Reply
    Boomer Wisdom
    April 29, 2011 at 11:35 pm

    Borrowing against an asset is only desirable if 1) you can afford to lose the asset, and 2) you are borrowing from it to buy an income-producing asset that you have reason to believe will generate more ROI than any real estate appreciation.

    People prior to the 1930’s generally paid off their homes ASAP, because most loans could be called-in by the lender if the lender got into trouble or the economy tanked. The Federal Government supposedly fixed this inconvenience.

    There are several of these misconceptions that arise from short-term economic circumstances. I grew up hearing them all:

    STOCK MARKET– The stock market won’t ever tank again like it did in 1929 because people aren’t allowed to buy on margin in the same way as they did, cuz the Federal Government fixed that.

    THE DOLLAR — The U.S. Dollar is the best currency because it’s back by the full faith and financial strength of the US government.

    TERM INSURANCE– “It’s cheaper than whole life or cash value, so go ahead and buy it. It won’t accumulate any cash value, and you can let it lapse in your old age, when you don’t need it.” (Once you hit 50, most term policies expire and when you renew you end up with a medical exam and jacked-up rates. With whole life and cash value, the premiums ultimately start paying for themselves and they act as a positive savings plan.)

    SOCIAL SECURITY– This is a sound program that you can depend upon to take care of your basic needs in your old age. (reality check: it’s an unsustainable Ponzi scheme and will go under — along with Medicare– within the next decade unless something is done to fix them, which won’t happen. These two programs will probably take the rest of the national economy down with them, unless our new nationalized health care beats them to it.

    Always buy the biggest and best house you can afford, because it always gain value.

    Another, fun hilarious thing life insurance reps used to say “No insurance company has ever gone bust.”

    I’m sure there are many more of these stupid myths. As for me, my opinion now is that if my colonial ancestors (Scottish and Dutch) wouldn’t buy into it, I shouldn’t either.

    You have shown good judgment. Have a blast.

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