they're still going to make the choice between carrying a mortgage for 30 or 15 years and deciding if they want to pay extra on principal
They are, but they cant control the rates. If they're lucky, this random distribution of mortgage acquisitions every 5-7 years will end up averaging to the average. If they're unlucky and end up moving when mortgage rates are high, while they'll be able to recoup some of that difference by periodically refinancing, its still a loss against the system. On the other hand, if they're lucky and move when rates are very favorable, they get a nice bonus.
But as I've mentioned 100 times now, looking at this from the "I pay x% and can make y%" is ridiculous. The two major factors have nothing to do with rates of excess return from the leverage.
Its about all the lack of gains from your emergency cash and gain reductions by maintaining more fixed income in your portfolio to reduce volatility because you've got payments to make, and whether you can remain a rock in your 6th or 7th year of a bear market while you're sucking the life out of your portfolio to make non-elective payments.
In short: you're taking on more risk of portfolio survival, more payment risk, and weakening your options for a "save" in exchange for a potential to improve your terminal portfolio size. TERMINAL portfolio size.
As far as the "save", someone that has to ante up 15-20k in regular expenses and another 15-20k in mortgage payments a year is going to have to go get a decent regular job to cover those if they really deplete their portfolio. With just the 15-20k in regular expenses and no debt payments, any old part time job will cough up that much.
We often point out that a major bear market in the early years of retirement can be a killer. The more you have at stake, especially in the form of leverage, the more risk of that major bear market in the early years doing you in.
Funny how dang brave some people get when we're in a bull market. Everyone breaks out their two-factor calculators to try and determine how rich they can get by leveraging themselves to the hilt. Good idea when you're young and working. Bad idea when you're 50, have been out of the workforce for 5 years, and you're living off your portfolio.
I still well remember talking about this around here back in late 2002 and early 2003. Dont remember a lot of people encouraged about yanking money out of their house and stuffing it into the market. In fact, at that time I could have gotten a 3.9% 5/1 mortgage and floated the idea of leveraging that. I dont think anyone stepped up to say it was a good idea. Five years was just too short a horizon.
So after an enormous price reduction on the S&P 500, sub 4% rates available on the cost side, but when everyones nervous...dont do it man!
How ya gonna feel when you've just eaten the "price reduction" on your portfolio, your cost is 5-5.5%, and you're freshly introduced to a lot of nervousness.
