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Re: How to be Setup for Life ?
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Nope. When you sell one property and buy another property you cannot roll your mortgage. You must apply for a new mortgage loan and accept the market interest rate. Your analysis depends on you having the SAME mortgage rate for a 20+ year period, which is not assured. (i.e. subject to risk) [/ QUOTE ] When you buy the new home, you get a new mortgage, without using any of the index funds you've built up by having the mortgage. So if the return on your savings is lower than the return you would have gotten on your mortgage, it only "appears" that you've momentarily lost money. You actually have to sell to lose money. You haven't lost because you've built up a low cost basis in index funds that you aren't going to sell (certainly not at a market low). Volatility is only risk if you are forced to sell, otherwise it's actually opportunity. You'll get a new house and new mortgage and continue to save in the higher return index funds. Even if temporary dips drop your returns below the mortgage rate, you can be confident that over long periods of time your returns will exceed it. And you always have the option of paying off your mortgage if it gets too high. Example: S&P Returns by Decade This info is from Bogle's book and ends in 1993, but will serve our purpose. S&P 500 has averaged 10.3% a year since 1926. 49 out of 58 ten year periods produced higher than 5% returns. And once again, this understates "real world" returns if they buyer is using dollar cost averaging to make their index fund investments. |
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