Ramen, for every meal. Mmmmm.

Don't forget the local happy hour. $2.00 draft and all you can eat taco bar.

Most of that I did. I lived far from lavishly while in school. My graduate program (and yes, I consider a graduate degree a "necessity" nowadays - a bachelor's is good enough to get you a $30k a year job and that's about it in most fields, it's about what a high school diploma used to be) was at a state university and cost $60k. The balance is from my undergrad.

Most of the people I know with similar levels of education owe at LEAST what I owe. I am actually towards the low end.

The article, while lost in the details, has a valid point. Protect your cash flow IF you know what to do with it.

Of course if i didn't have a mortgage right now i'd be working for myself and much more satisfied with my professional life.

State school with co-op program. I sacrificed my breaks to alternate quarters of school and work. My parents also helped, but for at least 2 years of the 5, I paid all from my pocket. If I didn't have money from my parents, I would have gone to one of two schools that offered great scholarships. Of course, those schools are in flyover country and below standards for some folk.

I was of the school that promoted leveraging to grow quickly. It allows for rapid growth, but brings risk. I found myself out of balance and started paying down debt. I don't bring near as much income, but my expenses are far less now. Why work so hard when Uncle Sam and the man are there at every corner with outstretched hand? Vary Your Mileage May.

jurgen

This same argument pops up occasionally. To be completely honest, I will never be able to understand how someone could think it is 'better' to keep the loan at the contracted length. Simply looking at the interest should be grounds enough for eliminating this burden as soon as possible. I guess the next point made is that the interest rate itself is unimportant... this has to be true as since the focus would be perceived to make as little downpayment as possible - at least it would be according to this strategy. Seeing a questionable article, even if it comes from a reputable source, does not mean it is a wise thing to do.

I paid off my home in 3 years and 4 months - words do not do justice for the financial freedom that this provided. Tax writes-offs are a joke in the actual scheme of things. Banks apparently LOVE people that believe in this purported strategy.

My current net worth is considerably higher using the maximum payment to principle philosophy. Given another opportunity, I would do nothing different (other than trying to making a larger downpayment). I am not surprised that resoundingly the responses favor the less wise choice.

Wow, you ate expensive food. When I was an undergraduate (this was several hundred years ago), Kraft Macaroni and Cheese was ten cents per box. To this day, potatoes are about the same price as beauty bark. I ate those things. Potato Stew.

Wow, that's a pretty elitist statement.

Of course, those of us in "flyover country" didn't get suckered into paying $900,000 for a 800 sq. ft. house. We put 20% down and got 30 year or *gasp* 15 year mortgages. We did stupid stuff like spending 25% (or less) of our income on housing. Now our tax dollars are going to be tapped to bail out the geniuses on the coasts. (Like it always is.)

I went to a California State school and worked 25 hrs/week. Plus lots of mac & cheese!

Of course, I can;t brag abut my credentials, but I also have no debt whatsoever.

Agreement between us should scare you Wayne, but not me. I'm comfortable as long as Mule disagrees with me. (wink)

Guys, let's look at this really simply. Scrap up 5K cash, get an FHA loan and buy a 100K house. At the end of the first year, let's say RE has appreciated 10% (not unreasonable). Now you're sitting on a 110K asset. Let's go forward another year. Now you've got a $122K asset. On a $5K investment. You sell, pay off the $95K note and keep $27K.

Now sure, that ignores the fees you pay to the RE agent. And it ignores the interest you pay, but that amount is probably not far off from the rent you would otherwise be throwing away. And then there is the tax exemption.

If you execute the above plan and, instead of making the minimum payment you pay extra on principle....then guess what your ROI is on the extra principle money you paid in? Yup, you guessed it. 0%.

If you invest it in the stock market, you MAY get a good return. Or you may also lose money. I'd direct you to the wonderful stock predictions made in the stock prediction thread here in OT to see how much money has been "made."

Borrow money at 4%, then invest it elsewhere for a higher rate. Much, much easier said than done. Esp. when you invest that money, and are lucky enough to get a positive return, you are going to have to pay taxes on it. So if you are borrowing at 4% and investing it, to net 4%, you are going to need to make 6%.

Owning a home is a great hedge against inflation. Having a big loan on it doesn't help that hedge (unless you are getting the loan for free).

From what I've seen, there are really only 2 groups of people who don't pay off their mortgages:

1) Those that couldn't pay it off significantly early, even if they wanted to. Thus making the decision moot.

2) The wheeler dealers who don't pay it off (but could), and then use that money for other, real money making purposes. Most of these that I know tend to be small business owners that need the money for the business. So the money is helping to sustain a real business, and is making money.

Group No. 1 is 90% of the people. Although 99% of those in that group delude themselves into thinking they are in Group No. 2.

Another way to look at it is in the reverse. This is more useful because it eliminates Group No. 1, and presents a REAL choice.

Say someone inherited a $500,000 house, fully paid for.

Would you advise that person to take out a loan on the house, to use the money to try to make money in the stock market?!? IMO that would be very bad advice.

If your interest rate is 7%, you pay extra on your mortgage and you are GUARANTEED a 7% return on that money, plus the taxes you paid on the income it took to pay that note. Figure net of around 10% return, not too shabby ROI, and it is a slam dunk. Just because the interest is deductible from your income does not make it "free"

The logic in your article may be sound, but that does not necessarily make it the correct thing to do.

When you pay-off your house, ensure that you are insured up to your ying-yang (fire, earthquake, liability, .....)!


BTW, there was also an article about "Do not contribute to your 401K any more than the matching %." In other words, if your employer will match 50cents on the $ up to 6%, then you should not contribute more than 6%. So, if you could sock away 8%, invest the 2% in stocks, not into 401K.

I'm expecting a few years of stagflation. Leverage makes no sense to me.

You spent two bucks on supper? Man, you must have been rich . . .

Ramen noodles was the bomb. $20 on that and a 50-pound bag of rice for about $10 and you could eat for a whole semester! (yes, I did this).

A former roommate had it worked out that he could eat for free, 3 meals a day all year. He'd do happy hours a couple nights a week (they had free chips & peanuts and stuff), church & synagogue spaghetti dinners, etc. He had it down to a science. Pretty funny.

My house was was paid off since I was 37 years old. I have since purchased a second home, a vacation home, that one has a mortgage. I considered selling it for about 40-50K more than I paid for it, now 3 years later, but instead, I am considering making it into a vacation rental and letting the vacation rental monies pay off the mortgage, however long that takes and then making mortgage payments size payments to my retirement account. (IRA's in both mine and my wifes names)

Then investing further into the stock market.

I already have a decent amount of money tucked away in my savings, enough to live for a year without any income. So at the ripe old age of 41 I am ready to attack my retirement portfolio. In the fall, I can realistically sock away an easy 25-30K a year. Once I get the vacation rental established.

Anyone want to rent it from me? I'll give you a good deal, 4 bed 3 bath 2 car garage surrounded by some of the best driving roads I have ever been on. (Dragons Tail and Devils Backbone both within an hours drive of it)

PM Me for details. :D

That's just nuts - everyone should max their 401k contributions, company match or no, IMO. You can't beat tax deferred growth...

It is not nuts, it is wrong. You can not beat tax deferred growth, unless it is tax free

:) Yup...no more mortgage for me....the extra money is now for family travel and vacations...And no regrets at all...!

QUOTE: "If you execute the above plan and, instead of making the minimum payment you pay extra on principle....then guess what your ROI is on the extra principle money you paid in? Yup, you guessed it. 0%."
______________

Unless you plan to stay in the house. Then you have to factor in ALL that interest money you DID NOT PAY to a bank/financial institution.

If you are young, may change jobs, move, etc. ...run the numbers. If you are later in life/stable/settled ...pay that baby off ...sooner!

Guess how much I saved in Interest paying off my 30 year mortgage in 8 years? About 100K

Now I can go about depositing that much in a high yield account every 3-4 years.

Sorry, I just do not agree. I bought a simple home and paid it off. Now I have the freedom, to set myself up for retirement with out the hassle of dealing with a mortgage. I have no real bills other than an Audi lease that is up in 5 months. (<----- huge mistake, I learned my lesson, I will only buy cars cash from now on and they will be affordable) Once the Audi is gone I have ZERO debt and couldn't care less about credit ratings. I do not need to borrow money, if I cannot afford it I am not buying it.

I'm getting lazy with the proper use of green text. The schools I wanted to attend were in GA, AL, MS, and TN. None were elite schools, and I would have been more than proud to attend any if I had to do it over again. Schools in flyover land present good value and are a way to escape the debt parade.




I guess I don't fit your profile. I like paid-off property with a line of credit attached. The LOC costs little to maintain. Interest rates are competitive, and you can use the funds to buy "investment" real estate. Sellers take notice when one brings wheelbarrow full o' cash.

I think his "dinner" was free! The 2 bucks was for the beer. A smart choice particularly if you bring a big bag and snag a bunch of taquitos for later! ;)

Wayne, just think of them as Imortgages. Of course you are correct in the technical analysis, but just like the Iphone, the "intangables" of being debt free is a beautiful thing for "most" of us at this point in our lives. I've seen the merry-go-round abruptly stop for too many people in recent years. Plus, Supe agrees with you :)

ps: Just kidding Supe, I agree with you on a lot of different stuff

sorry I didn't read the entire article; I tried twice but couldn't get through it?
Now the thread has gotten away on me and I haven't read all the posts either.
Thirdly, its a Wayne thread/post, so I'm likely gonna catch some heat for not reading the thread to this point if I say something stupid - who me?

Anyway, I'd just like to say that there is GOOD debt and there is BAD debt. People need to learn the difference.

Also, I would never take out a mortgage for longer than a 20 year amortization, but preferably 10 or 15. This is the biggest cons by the banks today.

I sat in a debt free situation for a few years, but I just felt like I was outa the game and too scared to go up to bat, for fear I'd swing the darn thing and miss; again. No swingy, No hitty. I'm back in the game, swinging.

Agreed. You and Wayne et al that are leveraging debt for you business are in a different league than most of us. I'm in the infancy stages of dabbling with what Turbo6bar is suggesting (i.e. paid off property(s) with a LOC for investment purposes), but I simply don't want my primary residence to be "leveraged and in play". I get the feeling that you "thrive" on the game itself (and are VERY good at it), but some of us just prefer to travel a different path.

Same here and I do both. Pay enough on the principal on my morgage to equal a 15 year note, and invest towards retirement.

That is exactly what I am doing. I have yet to hear from anyone wishing they hadn't paid their mortgage off early.

you never will, good theory in article, bad in practice

They did not factor in the cost of Norvasc, Coreg, Benicar, Altace, Lasix, Cozaar, Avapro, Hyzaar, Micardis, Lopressor and don’t forget the Maalox. Technically it may be the right thing to do but I always look at the quality of life, I still need to have fun..

I suspect that typical porsche DIY guy demographic doesnt like to carry a payment.

Most folks here that work to pay down a mortgage will likely admit that it might not be the 'best or most sophisticated financial move', but they have paid it down because it gives them peace of mind. There is value in that.

Simply: When inflation rate vastly out-paces an effective interest rate, there is good potential gain in dragging-out repayment. ---you just need to know which way the inflation/deflation rate will go.

Hey Keith,
Thanks for the compliment. I do thrive at the game, but I also kick myself in the arse when I read posts like Jim's above ^; 41, debt free, etc. So I dunno buddy, different strokes for different folks? I'm on a run right now, no looking back, but I'm gonna re-evaluate soon?

Good news is that since I came outa hiding, I've vastly improved my retirement portfolio and lifestyle; changed up the toys, took some trips, etc. I would've never spent savings to do those things.

I'm thinking about having some kind of part-time work for the next 20 years; I can't just sit and enjoy, my bad as Livi says. (my new quote; my bad)

I can also add that when I jumped outa the debt free status, there was DEFINATE risk involved, huge. I'm intrigued by the fact that there is a very high percentage of businessmen that made their fortunes at an age much older than I; maybe some of our best works is still ahead? This last million was way toooo easy to make?, but I don't want to get caught in the kitchen with my pants down either?

Cheers! ;)

Funny, I look at you and wish I took bigger chances over the last few years.

The grass is indeed always greener.


I am happy with my decisions, I do not have the attachments to take big risks and go a very conservative route. The vacation home still gives me anxiety to this day because it took me out of my comfort zone.

yes that is the right way

Yeah, funny 'eh? You did the right thing buddy and good on ya! ;)

After reading this thread and thinking more on it, I went downstairs and talked to my Vice-President (wife) and told her I thought we should liquidate some of the assets and pay off all the debt, that I'd feel way better. Gonna cost me a few points, but I think it would be the best bet at this time, for me.

Then I can head out to the cabin this summer with no worries :cool:

"If you can lock in a fixed rate now, chances are very high that inflation will increase in the near future, and you will have locked in a "deal of the decade"."

Unless a law is passed permitting the loan value/payments to be indexed for inflation. Never underestimate the power of special interests with a lot of money and a lot of money at risk. I seem to recall this occurred somewhere during a inflation cycle in the recent past? Israel?