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  • Writer's pictureKris Krohn

Why You Should Never Pay Off Your House

Everyone says you should pay off your debt as soon as possible but is it the best thing that you could do? Today I'll show you what you could use that money for and start making you financially free!

Been busting hump to save up an extra thousand dollars and here's the big question: What should I do with it? If you're like most people, you've been told that if you have a mortgage, you should get it paid off.

You should take this money, ship it into the bank, and say, "Hey, lower my mortgage because someday I would love to have my house paid off." Well, my question for today in our new world is that really that important of a goal? Should you be striving to pay off your mortgage? Or is it possible that there's something different that you should be doing with your money? Check it. 

What if I told you that paying off your house was like a bomb just waiting to go off? Which is why we're going to be answering this question: Should I pay off my house? What is it that I learned about people trying to pay off their houses in their 40s, their 50s, their 60s, and their 70s, and why in the end did it actually not matter? Where does this idea come from that you should pay off your house, and is it really good advice today? 

Well, I think that if there was a mascot in today's world for "you should get out of debt and pay things off," it would be none other than Dave Ramsey. Stupid. And this is Dave Ramsey's advice. He says, "Don't buy a house unless you're out of debt, and if you're out of debt, then you should get a 15-year mortgage, which means instead of a 30-year or a 40-year, you should have a really high payment so that you can pay it off sooner." 

Right next, if you can, you should put 100% down, so if you can avoid getting a loan, you should do that. And then finally, the monthly payment should be no more than a quarter of your take-home pay. So, Dave is leading the charge, essentially saying, "Debt is the worst thing that could ever happen to you, and guess what? You should do everything in your power to stay out of debt."

If you are going to have to go to a bank and take out a loan, then only do it under these parameters. Make sure it's the shortest loan possible, 15 years. Make sure it's the highest payment, and you do everything in your power to get that thing paid off. 

So, whose advice is this really for? Well, Dave Ramsey's advice is good for people who are bad with money, or they're just truly financially conservative, and at the end of the day, they're scared of the notion of debt. But can I tell you something? I've learned that debt can be used as a tool for generating and creating wealth. 

I play by a very different set of rules. Rich people play the money game to win, whereas poor people play the money game to not lose. I'm going to tell you right now that if you gear your entire life towards getting out of debt, it will consume your most valuable asset, time, in the pursuit of having no debt. 

Today, I'm going to share with you some alternatives, faster ways that, if you wanted to pay off your house, I'm going to show you how you could do it a lot faster. In fact, right now, in watching this video, if you own a house, chances are you've seen its value go up, which means you have equity. It's worth more than what you owe. 

And technically, you could go in the opposite direction; you could go back to the bank and actually say, "Bank, give me more money." And you'd think, "Well, Kris, that's counter-intuitive. Aren't I trying to pay off the house? Why would I want to take some money out of it?" Check it out. The word of the day is "arbitrage." 

Most people have either not heard of this word or they just really don't understand its true meaning because if they did, this is how rich people get rich. Check it out. Investopedia says that arbitrage is the simultaneous purchase and sale of the same asset in different markets in order to profit from the tiny differences in the asset's listed price. 

Let's just say that you can borrow money from a source at 7%, but you can invest it somewhere earning 11%. What is the difference? The difference is 4%. When you earn your 11%, you pay your 7% that you owe, and that means that there's 4% left over for you. In theory, this is what banks do, right? I mean, they get your money, and they pay you a little bit for it. 

But what are they doing with the money? They're lending it out to someone else on a mortgage at 3% or 4%, which is many times more than what they're actually giving you. But I'm not really interested in 4% because single digits don't make you rich. 

Well, I need to give you a different list of assumptions, and I'm going to show you how to do it. Here's my advice compared to Dave's: Buy a home as soon as physically possible. Get a 30-year mortgage or even a 40-year mortgage if they'll give you that. Not a 15. Go in the opposite direction. 

Put as little down as possible, and if the bank will give you the money, take it. Now because that's what helped me become financially free by the age of 26, I'm going to show you how. Assume for a moment that your home that you already have that you are trying to pay off, you're going to do something a little bit different. 

Let's assume that you have a house, and let's just assume for a moment that what you owe on it is $200,000. You bought it several years ago. We all know though, during this last pandemic, what happened. The prices shot through the roof. 

So let's just assume for a moment that the current value on your property is $400,000. It's worth $400,000, but it's half paid off because you only owe $200,000. Did you know that you can go to the bank and you could request something called a home equity line of credit, a HELOC? And basically say, "Bank, I would like a credit card that is attached to the available equity in the house." 

So, you get this home equity line of credit, and you're like, "Wow, what if I went and I bought another house? Let's just say I bought a rental. Let's just say that that rental cost me $50,000 out of pocket. Now, where am I getting this $50,000 down payment? I'm getting it from a $120,000 line of credit that the bank set up for free for me. 

And when I borrow this $50,000, you're going to say, "Hold the phone, Kris. I can't even contemplate this." Don't you see my house is worth $400,000, and I owe $200,000? You're asking me to literally pull $50,000 out of the house and go even deeper into debt. That looks like I'm moving in the wrong direction. Hold the phone. Now here's where arbitrage comes in. I can borrow this $50,000 at 3%, but I can put it into a property where I'm earning a 25% ROI. And a part of that is cash flow.

Let's assume for just a moment that that cash flow is $450 a month. I'm borrowing the money at 3%, and I'm earning a total return of 25%. Remember, you get to keep what's in the middle, which is 22. Does it make sense for you to borrow money at 3% and have it performing at 25 and leaving you 22 in the middle? And on top of that, giving you $450 a month of positive extra cash flow in your life.

And on top of that, producing a tax benefit where that $450 has no tax consequence because it's written off against the depreciation. Watch another one of those videos, subscribe to my channel, I'll teach you all that stuff. And on top of that, there's leftover tax benefit that will reduce my normal job income, so I give less back to the government. Hello, does that sound like a good idea?

This is how I became wealthy at the age of 26. So we're talking about two very different philosophies, two very different approaches to debt. One considers debt really bad, and one considers debt really good. Either you can pay off the home and keep working your 9 to 5, or you can use your home to buy more homes until you've replaced your income. And what we're talking about here are levels of financial freedom.  

You see, first of all, there's safety, and then we're going to compare safety to freedom. What is the difference between these two numbers? Well, let me show you. Let's just assume for a moment that you have bills every month, expenses in your life of $4,000 a month, and of the $4,000 a month, some of that is to go to your debts.

Most people when they retire will literally consume everything they've saved, their nest egg, within a few short years, which means you're going to have to sell your house if you need more money or you've got to go back to work. But today, I'm telling you that there's a smarter way.  

Listen, if you're new to my channel, make sure you subscribe because when I drop videos, they're designed to awaken your financial genius. And if you're a little bit curious how I did become financially free with this game of positive arbitrage, then I want you to click this video.

I'm going to take you on a journey with my CEO as I travel to my very first homes in style in a limousine. I'm going to show you how I became financially free at the age of 26. Well, dude, listen, you have gotten in the game of real estate the last couple of years. You went from owning nothing to now you're own house. You got three rentals. 

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