Comments on: We're split down the middle …

By: AJC

AJC — Mon, 10 Nov 2008 19:25:45 +0000

@ Di – No you didn’t; we’re both commenting on Nick’s thoughts … which reminds, me I haven’t thanked Nick for putting pen-to-paper so comprehensively and, as I did say, he has summed up the ‘pro-pay-down-your-mortgage’ argument very well.

I agree about your points about selecting an ‘expert’: your Number/Date should help you identify (and ignore) any advice/experts who a bit of quick number-crunching and common sense will tell you are taking you AWAY from your ultimate goal.

By: Di Eats the Elephant

Di Eats the Elephant — Mon, 10 Nov 2008 16:41:46 +0000

AJC: I didn’t say that it was a “risk management benefit,” I just thought Nick brought up the idea of thinking about risk (which I think is an important aspect of whether or not someone wants to “play it safe” or get “rich quickly”) and few blogs or authors address this very much. Here’s (an example of) where we tend to pay the most for risk (think “OJ Simpson”) – for experts whose value we can’t evaluate, but we are facing dire consequences if we choose the wrong expert.

By: AJC

AJC — Mon, 10 Nov 2008 03:19:27 +0000

@ Shafer – You are right: a fixed mortgage and inflation actually DECREASING your payment in ‘today’ dollars … it’s a beautiful thing

By: shaferfinancial

shaferfinancial — Sun, 09 Nov 2008 23:35:15 +0000

“Look there are special situations when anything can be shown to be correct, but as a general get rich(er) quick(er) strategy, forget about paying down your mortgage … it’s as simple as that!”

You are so right on this point.

“$100,000 in 30 years will have almost the same buying power then as $31,000 does today (assuming that inflation averages just 4%).”

People forget about inflation. Sure you will end up paying some serious interest $$$$(tax deductible)by having that large mortgage, but you will be paying it back with devalued dollars. I’ll take money now that I have to pay off with dollars that have a real value of less than half of the money I got up front any day!

By: AJC

AJC — Sun, 09 Nov 2008 04:29:52 +0000

@ Di – I just don’t see how paying down your mortgage is a risk-management benefit; if you lose your job, try asking a bank to give you back some of the equity.

@ Trainee – re 1. – we seem to be saying the same thing; it’s all about investing where you get the best return (provided that you have the skills/stomach to handle the various investment choices on offer).

But, I vehemently disagree with 2. – you can’t put bread on the table from a paid off mortgage … you can, however, buy a rental and live off the income from that (I have a video that should pop up in my Vodpod and/or ajcvault.com tomorrow).

Look there are special situations when anything can be shown to be correct, but as a general get rich(er) quick(er) strategy, forget about paying down your mortgage … it’s as simple as that!

By: traineeinvestor

traineeinvestor — Sun, 09 Nov 2008 01:18:20 +0000

I agree that paying off a mortgage early is usually a sub-optimal decision. However there can be situations where it is the right decision. As examples:

1. if there are no investments which you find attractive at a given point in time, it is usually better to pay off a mortgage than to accumulate cash in the bank (different after tax interest rates) and then redraw when you do find a suitable investments (assuming the costs of redraw are sufficiently low);

2. a person nearing retirement and likely to be giving up a regular paycheck and who wishes to focus on things other than investments may be better off paying down a mortgage than investing.

Cheers
traineeinvestor

By: Di Eats the Elephant

Di Eats the Elephant — Sun, 09 Nov 2008 01:10:34 +0000

I got lost at “your wife has a kid” – are we to assume this is not the husband’s child? How noble of him to take this on (assuming this was a surprise event, since it seemed to have been written as if it was a new expense). Good thoughts otherwise about the role of risk.