Ric Edelman Says I Should Carry a Big Mortgage Instead. – Carolyn

“Dear Steve,

I’m struggling with whether to get debt free as fast as I can or use the equity in my home and invest. I’m in the process of refinancing and cashing out $40K. I don’t have any liquid savings. I do have a little in 401K. I’m in my mid 40’s. Some say get out of debt but other’s like Ric Edelman says to carry big long mortgages. I’m confused.

Is it better to get debt free then think about investing or invest now?

Thanks for your help. So many different views out there.


Dear Carolyn,

Nice to see my buddy Ric mentioned. I’ve never been a big fan of the big mortgage approach. I understand his logic and the math on that (borrow at low rates and invest the cash for higher rates) but for me there are things which are more valuable that the spread on borrowed money and investment. There is a tremendous emotional value to not having a mortgage at all or having a small mortgage.

This does not have to be an all or nothing approach. If it was a perfect world I’d rather see you not refinance and instead focus on taking your extra money each month and use half for debt reduction and the other half for putting away each month. With that half put half of that into a boring old savings account and the other half in investments. So of the 100% of the extra money you have each month, 50% used for debt reduction, 25% savings account, and 25% investments. You can use the debt snowball method to get out of debt faster.

I’m a fan of keeping the mortgage as low as possible so that in the event of an unexpected situation you do not wind up in a position where you can’t afford your big mortgage payment. This past unexpected economic downturn has been a great example of that.

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If you look at the massive foreclosure rates you will find many people that had maxed out their mortgage in recent boom times only to lose their homes to foreclosure now when their income dropped or job was lost and they could no longer afford the big mortgage.

Think about it like this, a person with no mortgage can never lose their house to foreclosure.

I really hate to confuse you with an exact opposite position here but even though Ric is a friend, I just don’t agree with his approach.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
Damon Day - Pro Debt Coach

15 thoughts on “Ric Edelman Says I Should Carry a Big Mortgage Instead. – Carolyn”

  1. Best advice would be if you don’t have an emergency account the last thing you should do is lock yourself into the liability of a home. Not the mortgage but the maintenance. That’s a big problem. if you can’t save for a down payment and an emergency account, how in the world will you deal with an unexpected home related issue. In my opinion if you can do both you are then ready to buy a house. But the problem with Ric’s advice is it ignores amortization schedules. They are not very friendly to the person taking out a loan. Particularly since most loans never fully amortize. That is a big flaw in his argument from an investment standpoint. For most people Ric’s adive is a losing proposition given that after 15 years in a 30 yr mortgage you still have 75% of principle to pay. In that 15 years you will NEVER make that kind of return you paid in interest vs your small principle. It does work however if you are very well off or have a paid for home. Example is take out a 200k mortgage. All the cash is now in your pocket. If you immediately put 1/2 or more towards the mortgage you have really scewed the amortization schedule and could actually beat the return from an investment standpoint without taking undue risk. In a perfect world Ric’s advice works, but it’s not a perfect world, loans for the most part never fully amortize and if in the end taking a big mortgage is simply a hedge for disater #1 you will default and that is breaking a contract and #2 you just shouldn’t being buying a house at all.

  2. Ed and Steve,
    I too am a mortgage originator. I recently got a letter from a client that I advised 2 years ago to not put all of the 200k she had gotten from the sale of her home down on her new home. When I did a review of her situation when doing her mortgage for her she had no emergency savings.
    Thankfully she listened to my advice and put 50k of the 200k aside in savings. The letter she just wrote to me was to thank me since she just lost her job and would not be able to afford to pay her mortgage or anything else without her savings.

  3. Steve,
    Unfortunately that is just one of the sad stories I have personally witnessed over the last 2 years.
    Yes, we can only give advice and hope they take it.
    Think about this. Who is the Government helping? People who have mortgages, allowing then to modify them if they are behind. Problem is if you do not have a mortgage because you paid it off using a 15 year fixed and now have hit hard times, you are out of luck. you cannot have your mortgage modified if you do not have one.

  4. Steve,
    Yes, I agree! 🙂
    We do agree more than disagree and we both care for what is best for the person we are trying to help. That is the most important point. Caring about the outcome for that person we are trying to help and advise. i will indded register and look foward to help.
    .-= Ed Conarchy´s last blog ..Happy Holidays! Ed Has a Gift For You =-.

    • Ed,

      When I used your example for my Dave Ramsey Twitter friend to see the dangers of the 15 year mortgage. Here was his response.

      “hanks, but why always the horror stories? This is anecdotal evidence and an appeal to emotion…”

      “If I believed every story about bad things that could happen to me, I would never leave the house.”

      I guess all we can do is offer an opinion and let people decide their fate for themselves.



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