Is Keeping Your Mortgage a BAD Idea?
– All right guys, we are
on Baby Step 6 now, which is: Pay off your house early. Now, this is an exciting step. This is so fun! But what’s hard is that, you watching, you’re probably still paying off your student loans, your credit cards, you’re in Baby Step 2. So Baby Step 6 may seem a little far out, and it can be a little daunting, but I promise it is a great step, and it’s motivation because
this is where you’re going. This is the future. So, when we look at Baby Step 6 . . . Chris Hogan, Dave Ramsey,
thanks y’all for being here. – Thank you. – You’re just the experts
in the whole area, so welcome. Glad you’re here. So glad you’re here (claps). So, a few things that I hear with people when they talk about paying
off their house early is that they say, okay, I
don’t wanna pay it off early because it’s just not that big of a deal. But, Hogan, you see that is huge for, specifically with millionaires, people that are everyday millionaires, this is a big step for them. – It really is, and Rachel, as you know, we did the largest study that’s ever been done on millionaires. We talked to over 10,000 of them, and what we found is
that these millionaires are very, very focused
and very intentional and they’re paying off their
home in just under 11 years. – [Rachel] That’s awesome. – So if you think about that, that’s a massive move and a big step in their overall net worth. So paying off the home is a huge step on your everyday millionaire journey. – Which is huge. So, with your net worth, obviously, it makes a huge dent, but also with your monthly budget. If you think about it,
if you’re 50 years old and you have a paid for house, the next 30 of your life, you
don’t have a mortgage payment. – What would it be like
to have no payments? I mean, no mortgage. – Nothing, now– – Wow. – Another myth I hear is that
people say, well, I wanna keep my mortgage because of the tax deduction. And this is something that
we combat all the time. And so, what would you say? How would you answer that, Dave? What would you say to them?
– Well, it’s just silly. I mean, the math is ridiculous. Because if you take a $200,000 mortgage at 5% interest, well, that’s $10,000 a year that you’re sending in interest. Now, you can deduct that
only if you itemize, and, statistically, less than
10% of Americans itemize. So this is a mythological
discussion among broke people, is what it amounts to. So it doesn’t apply. In your standard deduction,
you don’t take the deduction for your charitable giving. You don’t take the deduction
with a standard deduction for your home interest rate. But if you did. All right, you
had $10,000 in interest going out to the mortgage company. You’re in a 22% bracket, which means you’re making like $80,000 household income. That saves you, not $10,000 on your taxes— it’s $10,000 less income
that you pay taxes on. At 22%, that means it
saves you $2,200 in taxes. So, what you’re effectively
doing is, you’re sending the mortgage company $10,000 to keep from sending
the government $2,200. (scoffing) And that’s only if you itemize and that just shows how
ridiculously stupid the idea is. You’re trading a dollar for a quarter and you’re not gonna get ahead doing that. – Right. Would you rather
pay out $10,000 or $2,200? If you’d like to pay out $10,000, you can call me.
(laughing) We’ll put my cell phone number
at the bottom of the screen and you can give me that. (laughing) But yeah, it is, it’s just the math. – I bet you would pay $5,000 of their taxes. – (laughing) Yeah, that’s
right. I would do half. I would do half.
(laughing) That’s right. Okay, so Baby Step 6. It’s a long process. Average was 11 years. So people are, at this point,
they’re completely debt-free, consumer debt, they
have an emergency fund, they’re funding kid’s college, retirement, and then they’re throwing anything extra they have at the house.
And it can seem long and a little daunting as well, so– – But it kinda sneaks up on you. – But what’s your motivation? Yeah, what do you say to that? – I think what’s happening is you’re chip, chip, chip, chip, chip, and then suddenly, the wall falls. And you went,
whoa, that just happened. It kinda sneaks up on you because it is a little more gradual. And you have all these
celebration moments, like, paid off the credit cards! We paid off Sallie Mae!
We paid off the car! When you’re doing your debt snowballing . . . And then we got the debt . . .
The first three Baby Steps are very emotional and very visceral, and this is more like the marathon. But when you’re running a marathon, you look up and you go,
well, you know, I’m halfway through, and oh, look over there! There’s the yellow tape. We’re gonna make it and not die. And these things occur,
but it kinda emotionally sneaks up on you because it’s incremental. – What do you see,
Hogan, with millionaires specifically, because I love
that because it’s people that have won, right? What they do? – Well, bottom line is, these millionaires are very intentional, they
take personal responsibility, and they have a plan for their money. And so, paying off the
home is not an accident. It’s a part of the plan. Our culture is so used to buying homes. What we’re trying to do is get people to think differently about owning it, and that means it’s yours. You’ve removed the risk out of your life of having a payment, and
now you have an opportunity to do more with that money, like giving, or doing more things for yourself and your own financial future. – Yeah, so good.