Forbes Fail - Telling readers to not pay off your mortgage, because you know, you have stuff to buy

I came across this Forbes "article" on Facebook the other day - Should you pay off your mortgage before you retire? Four reasons you shoudn't.  

forbes

I call it an "article" because it was written by a marketer with Forbes, in this case an "Executive Officer and Vice President of Planning and Sales" at Northwestern Mutual which is a company in the business of selling insurance products.  We'll come back to that little detail later on in this post.

I also almost never post a comment on these so-called articles, whether on websites or social media.  There is no lasting gain to me, it usually results in someone completely misconstruing the point I am trying to make, and only creates annoyances where none need to exist.  That and online publishers try to suck every bit of marketing gain out of an article before they publish another one making the opposite point.  For this article, I made an exception.

When I first saw the article headline on Facebook, I was intrigued because I just had to see what compelling arguments could be made to not pay off your mortgage.  In a nutshell, these are the 4 reasons this executive at Northwestern Mutual says you shouldn't pay off your mortgage.

  1. Maximize retirement contributions with the money instead, especially if you have an employer match.
  2. There might be better uses for the money you would use to pay off your mortgage.
  3. Your mortgage provides a tax advantage.
  4. You might need the money you used to pay off your mortgage for an emergency.

The author of this article, an executive at a major financial services company with years of experience, just laid out what I'm calling 3 half-truths and a lie.  Let's deconstruct them one at a time.

1. Maximize retirement contributions and pay off your mortgage.  

Yes, you want to maximize retirement contributions as much as possible.  But isn't eliminating a major source of your monthly expenses one way to invest in your retirement? Think about it this way - if you don't have a mortgage, you don't need as much to live on each month and you don't have to worry about your investments making enough money for you to pay the mortgage.  Furthermore, if you are living on a budget, below your means, and have no other debt (because you need to pay off other debt first before tackling a mortgage), then why can't you maximize retirement contributions and tackle your mortgage?

2.  There might be better uses for your money. Like what? 

You should have paid off your other debt first before tackling your mortgage. And when you do pay off that other debt, you start paying off the mortgage. Yes, there might be other investments that can get you a higher rate of return on average, but as I asked one commenter "are there investments out there that provide a guaranteed return at a rate large enough to counteract the risk factor involved with continuing to stay in debt?" I haven't heard back yet.

3. Your mortgage provides a tax advantage. She did NOT just say that! 

This is where she compelled me to write a comment on the post.  For Pete's sake, she can't do math. If you are in a 25% tax bracket and take the mortgage interest deduction, you get $25 back in taxes for every $100 you pay in interest. IF YOU HAVE NO MORTGAGE, you pay the additional $25 in taxes and keep the $100 you would have paid in interest.  She is telling you to pay $100 to save $25 which comes out to a loss of $75.  Now apply that example to an actual mortgage with interest running in the thousands per year and see how much keeping the mortgage for the "tax advantage" is costing Americans (and maybe you) every year.

4. You might need the money for an emergency. Why is everything one or the other?

Mortgage paid off or not, you need an emergency fund. End of story. She kind of has a point that if you are close to or in retirement that you don't want to liquidate all of your savings and retirement funds to pay it off.  But don't forget that paying off your mortgage can, in many cases, substantially lower your monthly expenses.

So back to that little detail about this article being written by a marketer selling insurance products. This article is being written by a marketer selling insurance products! If you are focused on paying off your mortgage, that is money you won't be spending on their products. Now I don't think there is some big and underhanded scheme in play, but it is important to keep in mind the motives and mindset held by authors. I certainly don't hold myself as an exception to this.

And finally, ask yourself this - if you owned a home that was paid for, would you take out a loan against your home and invest the money?

Neither would I.

Don't wait for Mr. Right to buy a house and don't buy a house with any Mr.

Back when I was a single gal and just starting my career fresh out of undergrad, I seriously thought about buying a house. I had just moved to a new city, had a solid income, and was financially diciplined.  I just wasn't sure that I wanted to stay in that location for several years - long enough to make sure purchasing a house made more sense than renting. 

  This was about what I could purchase at the time. Beautiful, huh? I had grand dreams of renovating a property in my spare time. Looking back, I had no spare time my first two years out of school!

This was about what I could purchase at the time. Beautiful, huh? I had grand dreams of renovating a property in my spare time. Looking back, I had no spare time my first two years out of school!

My dad strongly advised against purchasing a home.  I followed his advice, even though it was tempting to purchase a house because it seemed like a smart investment. That was at the height of the housing bubble. Dodged. A. Bullet.  (Thanks, dad!)

I'm a big proponent of *responsible* home ownership and real estate to balance out mutual fund investments. I own two rental properties and would like to own more. So let's say you have the career, the income, the financial discipline, and the down payment. And you are committed to staying in one location for at least the next 5 years. But you don't have Mr. Right - you are either single or just dating someone.  Does this mean you should put off buying a house?

No and yes.

Waiting for Mr. Right

I understand the desire to have all of your ducks in a row for making major life decisions. Buying a home is a big commitment, but given that the average age of marriage for women is 27 (29 for men) you could be in your early 30s and still be in the "normal" range for the age at which you get married. That means that from the time you start your career to the time you get married, you may be waiting ten years to invest in a home. That's ten years of lost time to build equity and a sizable investment.  

Then there's the chance that you may not meet Mr. Right. How long will you put off securing your own financial future while waiting for someone that may never materialize? (I know, I know. I sound like such a Debbie Downer - but let's look at all the possibilities, okay?)

I can hear one big objection to this and that is a house makes you more stationary and less able to pick up and go. Perhaps it will make it harder to pursue a relationship with someone who doesn't live in the same town. This may be true, but I would still bet that investing in yourself will pay off more than waiting to invest in something that is yet-to-be. I would even wager that the right kind of Mr. Right will be attracted to a woman who is financially stable and smart enough to invest in real estate.

So do yourself a favor and don't let waiting for a ring get in the way ringing in your financial future.

Settling in with just any old Mr.

I'm just going to come out and say it - don't buy a house with someone you are just dating. Just. Don't. And that goes for fiances. I know that my old-fashioned sensibility is coming out, but several of the financial views I hold are "old-fashioned."  

When you purchase a house with someone you aren't married to, the chances of things "getting messy" are much higher than if you are married. A divorce takes at least a few months to complete. "Breaking up" just takes an argument and 5 minutes to pack a bag. Here a couple of scenarios to keep in mind if you break up.

1. Neither of you wants to move out but you put up the down payment for the house (he did help pay the mortgage). You don't have any pre-determined agreements about what do to with the house in the event of a break up. That's right - a pre-nup for assets in a dating relationship. Because you have no agreements in place, he gets 50% of the house because his name is on the deed.

2. He wants to keep the house but his credit is too bad to let him refinance the house into a mortgage just in his name. Your name is still on the mortgage and any late payments or missed payments will hurt your credit. Just having the mortgage in your name, even if paid on time, will affect your ability to purchase another house.

Keep your life simple(r) and don't buy a house with someone you are dating.

Now does this mean you shouldn't buy a house for yourself while dating someone? Absolutely not. Date and buy a house. Just don't mix the two.

It's your turn! Do you agree? Disagree? Have a story to share? Sound off in the comments below!