Wednesday, July 30, 2014

Another Economist

Some dude in the Wall Street Journal has written a piece on “Nine Reasons To Love Your Mortgage.” It doesn’t give his resume or CV, so we don’t know his qualifications, but he must be an economist, because he knows nothing whatever about finance.

1. “It's your cheapest way to borrow,” he says, which actually makes sense but would be a bit more logical if he didn’t start by saying that, “I'm not crazy about carrying debt.”
2. “It's a negative bond,” which seems to me like a bad thing and not a reason to “love it.” He pretty much confirms that thought by saying that “it might make sense to sell bonds to pay down your mortgage.” That’s hardly something you would do if you “loved your mortgage.”
3. “It leverages your entire financial life,” hanging like a financial anchor over every investment you want to make, every financial plan you have, every… Seriously?
4. “It's a backup source of emergency money,” which is where the nitwit doesn’t know the difference between the mortgage and the property which is secured by the mortgage. One can get some extra money from the equity in one’s home if the mortgage is low enough and is one can show ability to repay, but one cannot get extra money from the mortgage itself. And if you lose your job, good luck borrowing additional money against your house.
5. “It makes inflation your friend,” because inflation makes the price of your house increase forever and ever, amen. First of all, that has nothing to do with the mortgage. Secondly, a lot of people found out in 2008 that that theory is bullshit.
6. “It lets you profit from falling interest rates,” by playing the refinance game, except that eventually it no longer works.
7. “It's an effective way to build wealth,” which is a redux of #5 and was debunked in 2008.
8. “It's your default investment.” How many investments need to be repaired to the tune of $14,000 that you just spent for that new roof?

The last one is the zaniest one yet, equating to the insane guy who said that he was beating his head against the brick wall because it felt so good when he stopped doing it.

9. “Paying it off can drastically reduce your cost of living.” Not having it at all would have allowed you to have the lower cost of living to begin with.

2 comments:

bruce said...

#1 if you have to borrow any, a mortgage is the most cost effective way to do it. That's all.

#2 makes sense like " I love my boss, but I want to get rid of him by retiring".

#3 well... maybe the biggest expenditure you have , but I don't know about "leverage".

#4 HELOC is a 2nd mortgage, and he did mention if you have equity, so I think you're splitting hairs here.

#5 he talked mostly about mortgages and inflation, not home value, you're haircutting now.

#6 yes.

#7 Meh (on his statement)

#8 hahahaha good one

#9 Except you need to pay for shelter somehow. Unless you live under a bridge), you'll likely have some kind of living expense. Might be less than a mortgage and related expense (see #8 above)

Yup, probably an economist. Ok, I looked him up (http://www.jonathanclements.com) and he's a financial writer. He sounds better than Mr. Krugman, though
.

mama lauren said...
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