QUESTION UNDER SCRUTINY

QUESTION UNDER SCRUTINY

Is keeping a 2% mortgage "free money", or is Dave Ramsey right that peace of mind beats the spread?

THE EXCHANGE UNDER TEST

A 63-year-old caller earning over $140k/year called in with $92,000 left on a mortgage at 2%,
12 years remaining. He argues it is smart maths to keep it, because his money earns 5-15%
elsewhere.

Dave Ramsey told him to pay it off anyway, reasoning:

  "Because on a $100k balance, that 5% spread nets you $5,000 a year... $400 a month. Most
   families spend $400 a month on pizza. That little spread isn't making you rich."

  "We studied 10,167 millionaires. Zero of them said they built their wealth by keeping a
   mortgage to invest the difference. Zero. Mortgage literally means 'death pledge'. The
   borrower is always slave to the lender."

THE TASK

Adjudicate the maths first, then the psychology.

1. Check Ramsey's arithmetic. On a $92k balance at 2%, with safe money earning roughly 4-5%,
   what is the actual annual spread in dollars? Is "$5,000 a year" right, and on what balance
   and what return? Show the calculation.

2. Separate the cases that are being conflated: risk-free treasury/money-market returns versus
   "5% to 15%" equity returns, and the sequence-of-returns risk for a 63-year-old drawing on
   the money. A 63-year-old with 12 years left is not the same as a 35-year-old.

3. Assess the argument from authority. Is "we studied 10,167 millionaires and zero did this"
   evidence about the strategy, or a survivorship and self-report artefact? What would the
   comparison group have to be for that claim to mean anything?

4. Assess the "mortgage means death pledge" and "borrower is slave to lender" framing as an
   argument. Is it an argument at all?

5. Then commit: for THIS caller, with these numbers, what is the correct decision, and under
   what conditions would the opposite be correct?

Name specific figures, rates and dates. Cite a source for every factual claim, including the
etymology if you use it. Distinguish arithmetic from preference, and say plainly which parts of
Ramsey's answer are correct, which are wrong, and which are just rhetoric.