[fpgaminer]

Yeah, same here, mortgage is huge in these expensive areas. But having the house paid off is part of our FI plan. That's probably not true of the more hardcore FI crowd. They believe, rightly so, that stocks are better investments than a house and that a mortgage is basically just free investment money. I don't disagree, but I want to own a home ... just cause. So our investment portfolio is definitely real estate heavy :P I sort of balance it out by having less in bonds and more in stocks compared to the Boglehead's advised ratios (I don't see the value in having bonds for an FI plan anyway, but perhaps I'm just misunderstanding something?).

EDIT: See my edit above; I realized I forgot to clarify that my $24k/yr figure was excluding mortgage.

[jjeaff]

Borrowing on your home to invest is just a terrible idea. You may see higher returns on the aggregate in the market but doing so is a good way to lose your home. Too much risk and like you, I think the small spread (and it is very small) between your mortgage and market returns doesn't even cover the risk premium of the potential to lose your home.

[fpgaminer]

The idea isn't to borrowing against your home to invest.

Rather, the idea is that after you have your mortgage, you put your extra money towards your stock/bond investments rather than putting extra money into the mortgage to pay it off early.

This is because the interest on your mortgage is quite low compared to the long-term stock market returns (7-8% after taxes/inflation). So your dollars are more valuable there than spent paying off your mortgage.

In other words, if you take two people, each buys the same home, but one pours all their extra money into their home and the other pours it into the stock market, in 20-30 years the one who poured all the extra money into the stock market would have a much higher net worth.

[ryandrake]

That 7-8% return is not risk-free, whereas if you have a fixed rate of, say, 4%, any extra mortgage payments represent a risk-free 4% to yourself.

So the person who poured their money into the stock market may have a higher net worth, or they may not.

[fpgaminer]

I don't think real estate/paying into your mortgage is risk-free. I'd say it's about as risky as long term investments into the stock market.

Over all of recorded history, the stock market has gone up 10%/year on average (not accounting for taxes/inflation).

The common rebuttal to that is that past performance is not an indicator of future performance.

Sure, but then you have to apply the same logic to the supposedly "risk-free" real estate. I think it's just as likely that your house becomes worthless as the stock market no longer giving 10% returns.

My more general argument is that for all intents and purposes the stock market is a gauge of the overall economy. If suddenly the stock market stopped returning 10%/yr the economy as a whole would be in serious trouble. No investments, real estate or otherwise, would be safe. Your stocks would be as worthless as money stashed under a mattress.

That's my logic, at least. Of course, as I said, I don't follow that logic personally. Not that I don't agree with it, just that I'm willing to sacrifice financially in exchange for the satisfaction of owning our home.

[jjeaff]

I'm afraid your logic is a bit flawed here. The home value increase or decrease does not factor in when considering your mortgage. Your mortgage continues to exist no matter where your home value goes.

You have to pay that same mortgage even if the market tanks and your home becomes worthless. Even in the case of just "letting it go" the bank will take your worthless house and will still come after you for what remains on the mortgage.

That is why putting money into your mortgage is a "risk free" investment at 4% (or whatever your rate is).

[pc86]

If you borrow against your home to invest you don't lose your home if the investments tank, you only lose your home if you can't make the loan payments.

[jjeaff]

Yes, but lets hope your income is not based on investment success and that your job is still safe even in a market crash. Of course, if you have a steady, locked in income from a very safe pension or trust fund, then go ahead and borrow on your home. You don't have to worry about losing it in that case.

But you only have to go back to 2008-2009 to see how well that worked out for a very large swatch of the American populous.