Why it is ridiculous to pay down your mortgage.
Tuesday, January 02, 2007
I've been preaching this for years, "Use the bank's money - don't be in a hurry to pay down your mortgage". It seem like people are finally starting to get the message and Yahoo even agrees with me.
"On average, those families could gain $0.11-$0.17 per dollar by redirecting their mortgage prepayments into a 401(k). That comes out to a potential savings, on average, of about $400 per household every year."
Yahoo News - Prepay Your Mortgage or Not?
posted by author @ 6:10 PM,
2 Comments:
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At 10:48 AM,
ganzo azul said...
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Don't you want to know more about the study?
"A dip in housing prices could wipe out the equity you've been building by diligently prepaying your mortgage." How can they write this and not acknowledge that retirement savings accounts can also be wiped out. Haven't they read up on former Enron employees and the "dips" they experienced.
And, over how long of a period was the study conducted. Are the stock market gains experienced from 1990 - 2005 outside historical norms?
And, it assumes that borrowers work for employers who have matching 401ks and are leaving money on the table. Many small employers do not match 401k contributions.
Would the analysis make sense if the borrower were funding a Roth-IRA rather than a pre-tax retirement account. That $400 annual savings may just mean a deferred tax bill.
And, couldn't the study have provided us the analysis among different age groups. A 25-year old borrower and a 55-year old borrower have different near term objectives.
Isn't the difference between a comfortable retirement and not-so-comfortable retirement a paid-off mortgage? -
At 12:31 PM,
BadGolfer said...
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1. Do you build Equity with a 30 Fixed loan - No not really you gain appreciation. Most of your payment goes to Interest. And the average person re-fis every few years and restarts the whole process. You never actually pay the interest rate you think unitl the last payment. Therefore if you refi in 5 years your true interest on the amount is normally well over 100% - That is not equity building
