I have been in USA for 10 years and most people I know have 30 years mortgage which they do not prefer to pay-off even though they have cash hoping to make money in stock market.
Now, say mortgage rate is 5% and s&p 500 returns 9%(which has been a historical average for last 100 years.).At this rate, some one decides to invest the extra cash that they have in stock instead of paying off the mortgage is basically saying I am going to make those (9-5 =4%) in stock market.
That does not make sense considering that when you use that money to pay-off mortgage then you are making a guaranteed return of 5%(by not letting bank make that money from you). When you invest in stock market
instead of paying-off your mortgage you are only making
4-5%(remember its not 9% its 9-5= 4%). Also, that is ONLY IF you make money. Stock market can be volatile(Remember 2008?). Also, you pay 15% long-term capital gain tax on it if you make money on that investment.
OK. so I am from India where people normally buy properties for cash and I have aslo heard rumors about some Chinesse real-estate investors buying american properties for 100% cash.
Which means there are significant number of people in the world who do believe that paying interest to the bank for 30 years may not be best of the ideas.
Why do people choose a may-be 5% as oppose to a guaranteed 5% when they choose to invest instead of paying off mortgage?