Q&A: How Do You Account for Risk With a Big, Long Mortgage?

The answer to this question may surprise you.

Holding miniature house in hands

Question: About your advice to carry a big, long mortgage: How do you account for risk in this advice? What if people lose their jobs, their investments don’t pan out or they spend the money instead of investing it? Then they could lose both their houses and their money. Would you change the mortgage advice if a person had substantial assets outside the value of his/her home? I doubt that Bill Gates carries a mortgage, and I doubt that you would advise him to have one.

Ric: It appears you have never viewed my 90-minute video on the topic or read my books The Truth About Money and Ordinary People, Extraordinary Wealth, which cover this topic in detail. I encourage you to do so.

You’ll discover that the risk of job loss is precisely why you need a big, long mortgage! Yes, that’s counterintuitive, but spending a little time with OPEW will clarify it for you. In short: The fellow who gave the builder all his money, buying the house with cash to avoid a mortgage, is in trouble when he loses his job — because he has no money to buy food, clothes, medicine, etc. But the fellow who kept his cash and used the bank’s money to buy the house has plenty of cash to maintain his lifestyle while he looks for another job. So, while it may surprise many people, the person with the mortgage is in a safer position than the fellow who owns his house outright.

And you’re correct that I wouldn’t care if Bill Gates has a mortgage. I say so in my books. This conversation matters to middle-class people who have limited resources. Billionaires can do what they want with few repercussions if they choose incorrectly.