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

widgeon13 · 02-20-2008, 03:20 AM

The article is dead on, the problem is that most people will hot have the discipline to invest that money and consequently they end up with zero return or even more debt because they buy the big screen TV on time and fail to make the payments.

89911 · 02-20-2008, 04:43 AM

I use to have an employee that gave financial advice on the side in seminars. Her biggest issue was paying off your mortgage. She even went so far as to postpone her (2nd) wedding in order to not interfere with her accelerated payments. Her mortgage was modest but I thought she was nuts (and even told her, in not so much those words). She is now an ex employee, but at least my arguments were correct.

cgarr · cgarr's Garage

This may be true but I sleep a lot better knowing mine is paid off, something no amount of money can buy.. and I am close to retirement too..

frogger · 05:12 AM

When the post-tax mortgage interest expense exceeds the post-tax investment earnings for a protracted period of time (think stagflation), it seems wise to pay down/off the mortgage as quickly as possible.

If your post-tax investment earnings don't outstrip the post-tax mortgage interest by at least the rate of inflation, paying down the mortgage is a better "investment."

MRM · 02-20-2008, 05:22 AM

Paying off your mortgage is almost always a good idea. Having no mortgage increases your cash flow. That increases your discretionary income far beyond what good stock returns can do. Second, it's 100% safe. If I pay of my mortgage this year (I plan to) I'm making the equivilent of a 6% return without being taxed on it. Interest alone is something like $800 a month. Despite the proven returns of the PPOTBB stock picks, I am not confident that the market will beat my mortgage rate for several years - with risk and taxes and fees. Finally, a paid off house is the most security you can buy. A house you can afford to keep up in a good neighborhood where there are good schools and a paid off mortgage, I can't see how that's a worse investment that your average mutual fund.

frogger · 02-20-2008, 05:30 AM

I figure the market's going sideways for a few years due to this sub-prime/Alt-A *******. I'll have my mortgage paid off by the time it begins to rebound. I'll be able to double my current healthy monthly investment rate at that time.

RickM · RickM's Garage

There was a book on the subject several years ago. I'll try to remember the name and report back.

Add: I think it was "Rich Daddy, Poor Dad"...heavily criticized.

KFC911 · 02-20-2008, 06:00 AM

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...

RickM · RickM's Garage

Quote:

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...

+1

Porsche virgin · 02-20-2008, 06:21 AM

Quote:

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...

+2

I read that article a few days ago and cannot argue with the logic. That said, I have to agree with some of the other thoughts here.

LakeCleElum · 02-20-2008, 06:29 AM

I know of zero people that had the discipline to save the money that would have paid off their mortgage. I paid off my 2nd home at age 26, had a mortgage for 8 months at age 41 when I bought a bigger house in the country.

With the money most were spending on a mortgage, I paid cash when I built my cabin at the lake, paid cash when I build my retirement home (own all 3 now; mortgage free) and put over 400K in IRA and Investments by age 55.....Dunno if I could have done that AND retired at age 52 by paying a mortgage for 30 yrs???

John_AZ · 02-20-2008, 06:32 AM

The article focused on 2 variables: early prepayment of mortgage,adding $100 per month or investing $100 in the stock/fund market.

My reason to payoff the mortgage:

The person making these choices is employed, uncertain of future compensation and wants stability in their lives. Peak earning years are in the late 40's/early 50's. Think GM current buyout scheme: $140K now and no pension or $70K now and maybe/maybe not future pension. The choice is made easier if the mortgage was paid down.
This is even more obvious with todays market down 15 to 20% from the October 2007 peak. Individual investors tend to buy high and sell low-making emotional decisions. Another point missed by the article-stock market fear.

Pay off the house if financially able-do the credit cards first. $6K-$9K typical balance due per household. Many of the nations work force do not have the luxury of the salary given to executives or the golden parachute.

John_AZ

Rot 911 · 02-20-2008, 06:34 AM

I love the assumption that article makes that you will always see a 10% return on the market over a period of years. Sure you will, if you pick the right period. I'm like the others, I am paying down the mortgage as fast as I can.

Dave L · 02-20-2008, 06:59 AM

I put in an extra $80/month towards my mortgage and $200/month towards stocks plus my regular retirement savings. I will have my mortgage paid off by 40, hopefully sooner. The stock market may "out perform" paying off my mortgage but the peice of mind will be nice. I once saw David Chilton (author of the wealthy barber) speak he said that he has never met a person who said "I wish I didnt pay off my mortgage so early"

MRM · 02-20-2008, 07:02 AM

Quote:

Originally Posted by LakeCleElum

I know of zero people that had the discipline to save the money that would have paid off their mortgage. I paid off my 2nd home at age 26, had a mortgage for 8 months at age 41 when I bought a bigger house in the country.

With the money most were spending on a mortgage, I paid cash when I built my cabin at the lake, paid cash when I build my retirement home (own all 3 now; mortgage free) and put over 400K in IRA and Investments by age 55.....Dunno if I could have done that AND retired at age 52 by paying a mortgage for 30 yrs???

Couldn't agree more. Half of a mortgage payment goes to interest. How is saving that not the best investment around? If you pay cash for your house that is money you are saving that can be spent on your next house or retirement fund.

Mo_Gearhead · 02-20-2008, 07:07 AM

Figures lie and liars figure.

Pay the mortgage down FIRST. You will never regret it.

Been there ...done that!

<---- look at that smile!

legion · 02-20-2008, 07:08 AM

I agree with the article.......if you are disciplined enough to actually follow through. (And not just increase spending.)

99.99% of the population of this country is not that disciplined.

LeeH · 02-20-2008, 07:10 AM

Quote:

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...

+3 Exactly my feelings.

s_wilwerding · s_wilwerding's Garage

One thing to consider - everyone talks about putting money into your house as an investment. The problem is that, when you sell your house, let's say you got $10,000 more than what you paid. That $10,000 is yours, regardless of whether you own 0% of your home or 100% of your home. That's what my mortgage broker told me - when you pay down your mortgage early, you're not "making a return" - you're just saving interest.

That said, I like to pay my mortgage down early. Yes, it's possible that I could be making a better return somewhere else, but once I have my mortgage paid off, that's like a $1500 a month annuity. That's what I'm buying by paying down my mortgage - the earlier I pay it down, the earlier I get the annuity.

frogger · 02-20-2008, 07:39 AM

Quote:

Originally Posted by s_wilwerding

One thing to consider - everyone talks about putting money into your house as an investment.

Not everyone.

This brings up my main issue with the proposition of investment vs. paying off the house...EVERYONE's situation is DIFFERENT. You cannot make the sweeping, general statements that this way is better than that. You have to look at your individual situation and the state of the market (and your crystal ball

) during some window of time, and decide what's best for you. Cost / benefit tradeoff. Run some scenarios and see what makes the most sense. Consider your risks (investments, job security, etc.) and what you're comfortable with. To many people, owning their home outright provides a huge level of security, regardless of its investment value. That's my 2 or 3 cents.