Consumer Reports Article: Paying down your mortage = not really a good thing...

[the]

I've known a lot of people who have paid off their mortgage (myself included), and I don't know one who has ever regretted it, or who has ever had any money problems.

[the]

But I've also never known anyone who has returned 25% to 40% every year on their stock investments. Except here in PPOT, where it is the norm.

[frogger]

Happens all the time.

[nut11]

3 more years and I own it. I don't think I'll have any regrets and as noted, a $1600 monthly annuity coming my way sans taxes. Won't go there.

87 blk coupe

[daepp]

I bought my current house in 1998. I put every extra dollar, bonuses, etc, then refi'd to a 15/15 @ 4 5/8%. I paid it off two years ago at 42. IT can be done - even in So Cal.

Many advised against it. However, the peace of mind I have now that the market is in the tank is priceless. W/ 3 kids in private school, one of whom will start college in two years, I cannot tell you the relief I gained from paying it off. Maybe that's emotional, but it's the truth!

[89911]

Some are confused. Sure, not having any debt is ideal (actually it negatively effects you credit rating, but thats another topic). But in comparison to many other expenses, (credit card, car payments, school loans, taxes, etc,) it is the last one you need to tackle. Some just can't get over this thought. If you have zero finances other then you mortgage, sure pay it off. I think Wayne is trying to point out that there are more useful (Emergency funds) and profitable ways to spend your money. To each his own.

[Gogar]

Is that a little bit of ketchup in column 2?

Gotta watch those late night hot dogs, Wayne-o.

[Jims5543]

Originally Posted by KC911

Different strokes... I don't think I've known anyone who's payed off their mortgage have any regrets whatsoever. No debts = No stress + LOTs of disposable income (for investing, enjoying life, etc.) when times are good, and in a worst case scenario (job loss, economy tanks, etc.) No debts = NO STRESS and the world doesn't come to an end . Leverage has a price...

Here!! Here!!

No better feeling in the world to have the house paid off for all the above reasons.

I bought my house before the market went nuts and it was paid off in no time, I will never regret that move.

[einreb]

Originally Posted by Wayne at Pelican Parts

I've always advocated that paying down your mortgage reduces your leverage, and that you could probably do better investing that extra cash elsewhere, especially in light of today's low, low mortgage rates. Well, finally, I found a good article here that backs that up. Feel free to read & comment!

I barely trust Consumer Reports to help me pick a dishwasher much less manage my finances. I'm guessing they didn't compare the period in the market between 1965 and 1980. Flat. COMPLETELY FLAT. But hey... no capital gains taxes to worry about.

At the risk of wearing a tin foil hat, the system doesn't want you to pay down your mortgage. Why is mortgage interest on huge f'ing loans (unless AMT gets you) deductable? I can see wanting folks to 'own', but it doest inspire that. It inspires 'loan ownership', not home ownership.

Invest in mutual funds says the Financial Planner.
Refinance says the mortgage broker.
Upsize your house says the Realtor(TM).

Who's the advocate for needing less?
Less worries about debt?
Less worries about todays drop your portfolio?
Less stress?

I'm not saying that you wouldnt come out better, but what defines 'better'? I would argue that its not simply 'Net Worth' as typically defined.

[the]

Originally Posted by 89911

Some are confused. Sure, not having any debt is ideal (actually it negatively effects you credit rating, but thats another topic). But in comparison to many other expenses, (credit card, car payments, school loans, taxes, etc,) it is the last one you need to tackle. Some just can't get over this thought. If you have zero finances other then you mortgage, sure pay it off. I think Wayne is trying to point out that there are more useful (Emergency funds) and profitable ways to spend your money. To each his own.

My guess would be that 99% of people who have the personality, income and discipline to pay off their mortgage significantly early also do not have credit card debt, car payments, school loans, or any other significant debt.

[Porsche-O-Phile]

Most of the fools that took mortgages in the last 5-8 years can't afford to overpay them anyway, so what's the problem? One upside to over-extending oneself and "allocating" 60% of gross income to housing I guess. . .

I normally overpay EVERYTHING. It helps to kill interest payments, which are just legalized extortion, IMHO. Obviously paying cash is a good thing if possible (but most people can't afford to do that with houses). In lieu of that, anything one can do to kill interest payments and maximize Principal pay-down is a good thing.

However in a recession economy, I think the better play is to make lower (closer to the minimum) payments and stuff the difference into savings just in case of a layoff or other emergency. Obviously this takes discipline, but it's something I'm doing (it isn't all THAT hard. . .)

It would suck royally to be over-paying one's mortgage by 200% per payment and then get laid off with no cushion in the bank. In that case, the "overpayments" you made aren't going to do a damn thing for you - you'll still be foreclosed on in four months. At least by making the minimum and putting the difference into emergency savings, in the same scenario you can last for a few more months and maybe save your credit, your house and your sanity.

So from that token, the suggestion of the article is not a bad idea. But most of the idiots out there aren't nearly disciplined enough to do it.

Not to worry though, I'm sure the government will ride in to penalize the responsible/disciplined and bail out/reward the fools soon enough.

[Superman]

I have always agreed with that, Wayne. It is clearly obvious. In general terms, it is easy to explain why real property is the most common and effective way to build wealth. Where else can you enjoy appreciation on a high-value asset by laying down just 20%?

[RickM]

Originally Posted by Superman

I have always agreed with that, Wayne. It is clearly obvious. In general terms, it is easy to explain why real property is the most common and effective way to build wealth. Where else can you enjoy appreciation on a high-value asset by laying down just 20%?

So, when you're done paying off your first home you can use the newly freed income to save up your next 20%.

[KFC911]

Originally Posted by the

My guess would be that 99% of people who have the personality, income and discipline to pay off their mortgage significantly early also do not have credit card debt, car payments, school loans, or any other significant debt.

Yep...

[Porsche-O-Phile]

How in the world do you get to have no school loans? I think that's more of a function of being from wealthy parents than anything else. I had very good grades in high school and actually did have a scholarship, but it didn't come anywhere CLOSE to paying my college for me. Not by a longshot. It helped, but I still owe quite a bit on that.

I think for most people, it's a virtual impossibility to expect to enter the workforce without owing at least that. And those numbers can be staggering (in my case it's almost $80,000).

[KFC911]

I'm 47 (college was CHEAP by comparison back then), and all the "loans of my youth" were long gone before I purchased my first house.

[89911]

I got out of school owing about $100k for school and soon there after opening my office to the tune of another $100k, so I was in the hole before 30 $200 large. I didn't even own a home until I was in my mid 30's because I couldn't even consider it. Not everyone that owes money on other items is neither irresponsible or spendthrift. I've learned to manage debt and payoff every loan I have taken out. (The parents could not contribute at all). Every case is different.

[the]

Originally Posted by Porsche-O-Phile

How in the world do you get to have no school loans? I think that's more of a function of being from wealthy parents than anything else. I had very good grades in high school and actually did have a scholarship, but it didn't come anywhere CLOSE to paying my college for me. Not by a longshot. It helped, but I still owe quite a bit on that.

I think for most people, it's a virtual impossibility to expect to enter the workforce without owing at least that. And those numbers can be staggering (in my case it's almost $80,000).

Where is this thread about people who are just entering the workforce? I would not think that someone just entering the workforce is going to be considering whether to pay off their mortgage anytime soon.

My guess would be that anyone considering or coming close to paying off their mortgage is at least 10-15 years out of school (depending on where they live).

At that point, you don't have outstanding student loans anymore because you've paid them off over the past decade and a half.

[MRM]

Originally Posted by Porsche-O-Phile

How in the world do you get to have no school loans? I think that's more of a function of being from wealthy parents than anything else. I had very good grades in high school and actually did have a scholarship, but it didn't come anywhere CLOSE to paying my college for me. Not by a longshot. It helped, but I still owe quite a bit on that.

I think for most people, it's a virtual impossibility to expect to enter the workforce without owing at least that. And those numbers can be staggering (in my case it's almost $80,000).

You go to a state school. You live in a rooming house at $70 a week. You eat a diet that consists of cereal, milk, bread, generic cookies, peanut butter, cheese and water-added ham product (sandwiches) and generic mac and cheese. You work 30 hours a week and so you take five years to graduate. You don't go on spring break, you don't buy an expensive car, and you stay home most nights.

It's not pleasant but it can be done.

[frogger]

Originally Posted by einreb

I barely trust Consumer Reports to help me pick a dishwasher much less manage my finances.

This is clearly the best post in this thread. Totally nailed it!