You mention Ramsey. One of his reasons for advocating home payoff is if something happens like eternal job loss or extreme illness, they can’t take your home because it’s paid for. Once paid for your only expense is taxes and upkeep and if wise insurance. For most, a significantly lower cost than if you add in principal and interest. It also encourages you to use the KISS method in your life. The simpler, the easier to stay out of trouble.
That way, they would have insurance next summer, if drought, disease, hail storm or insects decimated their garden harvest.
Very important if a couple had 2-4 or more kids they were raising.
While there have been times when my "financial modeling" indicated that taking out a mortgage made for a higher overall return..., I prefer to have one less major concern in my life!
My Daughters have commented several times that we are the only people they know without a mortgage BUT..., both are proceeding to "join the club" as soon as they can!
Debt is a "necessary evil" at times but, other than in terms of income generating pursuits..., it should be avoided!
And that would be?
I disagree with your premise. If you had invested your extra cash in alternative investments instead of paying off your mortgage, you would have that cash to live on as well as pay your mortgage each month. With all your money in your "wooden piggy bank" there is no way to release it. You can't borrow against your house if you don't have a job because they know you don't have a means of payment.
I prefer a 30 year mortgage and I would invest the rest in a broad range of mutual funds. Its pretty simple to me. If I borrow money at 6% and earn 10% on my investments, I have netted 4% on the savings versus the mortgage paydown. PLUS, I get a tax deduction on the interest paid. PLUS, I get to invest in things that come due and payable before the house has to be paid off like a college fund for my kids and my ultimate retirement.
One thing to remember - the VALUE of your home is not determined by the size of your mortgage. Once you paydown your mortgage, the value of your home "investment" can only increase as much as the local housing market inflates. That has never been as much as the stock market over an extended period of time.
I like Dave Ramsey and he has some really good advice for people who don't know how to manage what little money they have, but he is wrong on paying off your mortgage. I built a spreadsheet where you can plug in the cost of your home, Interest rate, mortgage term and expected gain in your securities portfolio. It is virtually impossible to beat the long term mortgage unless you think the stock market is going to fold.
Finally, I say this as a partner in a national development company. I have built over a billion dollars of real estate in my career. We build investment value thru informed use of leverage (debt), not wild speculation and "flipping" properties.
That's a very good point. I'd play "devil's advocate" and provide two scenarios that might weigh against his advice:
1. If you live in an area where property taxes are high and/or insurance premiums are substantial, there's a good chance you won't be able to keep the home anyway in the event of a job loss or illness.
2. If you carry a mortgage, the bank shares the risk associated with potential problems outside your control that would adversely affect the value of your home (for example, the neighborhood goes bad, a major local employer closes shop or relocates, etc.). If you own your home outright, you are likely to have a very large portion of your personal wealth tied up in one asset whose value may increase or decline over time.