I don't know the exact figures were or what the interest rate was back then nut no matter what they tell you it is if you have to pay back 4 times as much as you borrow that's the true interest. Lots of veterans were buying houses back then so the lenders made billions off of them.
It won't lower your score, but at some point you won't have a score. 100% of the Fico score is based on the debt you carry and the debt you have access to. 30% Amounts Owed 35% Payment History 10% Credit Mix 15% Length of Credit History 10% New Credit There was a risk free return of 3.75 when I paid off my mortgage. Some would say it was foolish for me to do that because my money would have grown at 12% in equity investments. My spread would have been 8.25. But when you plan this sort of thing there is a beta for risk. The risk free investing rate was not 12% it was extremely low because of the historic low interest rates. The risk free rate was only .85. When you discount the 12% anticipated based on the risk you get a much lower spread. The spread is further reduced because the asset i put the money in is appreciating. The money saved by paying off my house isn't sitting idle because the house is worth more today than it was when I paid it off. If I wanted to,I could go get a mortgage and invest in something, but why would I do that?
Not really 3.75% if you itemize it would be deductible. You could get it down to 2% if you're in a high tax bracket. Additionally, the historical average return of the market is over 3.75%. It's closer to 6 or 8 although I don't feel like looking it up so I don't know exactly. that's not risk free but it is tried and true over decades. The risk in an average return calculated over that period of time, assuming you intend to hold the investment for a long period of time, is very small. This has nothing to do with it. The house will appreciate whether you have no debt or 150% of the value of the house in debt. It has not bearing on your return in this situation.
Beats me, I just know that I don't borrow money and I pay my bills every month and my credit score is high. Like you say, the biggest factor is payment history and if you pay your bills every month they score you high. If you have a long credit history (mine is 40 years) they score you high. If you don't have a ton of outstanding debt, they score you high. That's 80% of the scoring factors. I understand what you are saying about no credit when you pay cash for everything. But another poster said that paying off your bill every month will lower your score and that is simply untrue. Keeping low debt may make a credit card company not want to offer me a great deal because I won't be paying interest. Big deal, I don't need another card. But it won't hurt my credit score a bit. If I want to take out another mortgage for a mountain cabin or a loan for a boat, all those lenders care about is that I pay every month, have a long credit history, and no huge competing debt obligation.
Unless you phase out. Why would I want to send a bank $1,000 a month to not send the government my effective rate (around 18%) of my interest? The risk free rate is never the average rate of return. You generally use either the treasury bond or a CD return, depending on risk tolerance. In 2012 CDs were under 1% and the treasuries were at about 2%. A $100,000 asset with no liens is more useful to me than a $100,000 asset that someone else owns a percentage of.
If you phase out of mortgage interest, then you don't have many problems because if you have 10k in mortgage interest, you have make almost $1.2 million per year to phase out of it completely. And to answer your question, you would do it because finding a risk adjusted 4% return is not that difficult. So you adjust down your 3.75% by 18% and you get a borrowing rate of 3.075%. Why wouldn't you want to make the spread? And additionally, 4% is very low. You can do much better in investment grade commercial real estate. I understand that. The point I was making is that the adjustment for risk in a long term market investment is relatively low and would certainly exceed your effective mortgage interest rate when adjusted for that risk. Not only that, there are other very low risk investments that will yield 4% at a bare minimum. And I'm just going into things that are incredibly low risk. If you're willing to take on some risk but manage the risk and find something that is still relatively low risk, you can get 8% to 9% return fairly easily. This sounds like it's straight out of the R Kiyosaki handbook. The thing is, you would have the $100,000 dollars presumably in investments. The only difference is you would be making money on that $100k rather than it sit there doing nothing.
Which I believe is a way to rephrase my point about debt in a mortgage being so low interest that it's is worth having.
