All I can really speak to is how *I* would do this. What I plan to do when I buy my house (assuming it’s in the US) is to take out a 30-year fixed mortgage. NOT a 15-year fixed. It’s also a rule of mine that when I do this I have to be able to make a 20% downpayment to avoid PMI. So my budget for the house will be whatever I can swing 20% of AND be left with an affordable 30-year fixed mortgage.

Then, AFTER I have my full retirement savings taken out of my monthly pay plus set aside something extra and meet living expenses, whatever I have left I’ll snowball onto the debt. If I can’t snowball then I can’t. But I’d try to make sure I was in a position to pay off the mortgage early and still save. My goal would be to pay off the 30 year mortgage in 15 years or less but I wouldn’t sacrifice saving to do it.

Of course, before I can do this I have to get my student loan albatross off my neck (and yes, I have built in saving while I’m paying down the student loan.

DB

The figures and situations are great in paper, but the larger market (the teeming masses) I don’t think it falls to be applicable (meaning – just because I wouldn’t do it or endorse it doesn’t mean there isn’t somebody pulling it off and making some bucks on it!)

In addition, the interest rates on these loans are much higher than given on the sheet. Since this is assuming someone has prime credit while the bulk of folks jumping into these products are sub-prime. Another thing that is missing is the cost-effect of rates rising in the future. So having a fixed rate would be a lot better.

The best bet for the bulk of the population would be fixed rate mortgages. If you want to pay it down early you can without the pressure of having a 15 year nut each month. Or you can ratchet back and go to the minimum payment. I know you’ve discussed it before but simply paying your mortgage on a bi-monthly schedule will make your 30 year mortgage into a 23 year one.

Really great work and fascinating to see how great financial advice like this is rarely followed by the majority of the population. Maybe because it requires deferred gratifcation and self discpline, matters of psychology and will as opposed to finance.

I’m going to try really hard to answer this once and then not get sucked into further discussion, mostly for my own sake since this is causing me unhappiness.

I didn’t recall your prior ‘Dave Ramsey’ point mostly because my head is always overfull of stuff anyway. I remember reading that when it was fresh and having a fundamental dissatisfaction with it that it was missing part of the point of early repayment.

We are just going to have to agree to disagree, and go with the true yet hackneyed “this is what puts the personal in personal finance”. By your math in the DR post paying it off early means that according to your arbitary (yet reasonable) hypotheticals paying that mortgage off earlier puts you $300,000 behind.

The issue is that no matter how much you rely on the past to draw inferences about the future, there is still no certainty over how the future will play out. It may be that your assumptions are spot on. And then again there may be other life issues along the way that interfere with the best-laid plans.

The reason this whole thread is causing me unhappiness is because I think figuring this out by the math is useful only to a point. Your math fails to consider non-quantifiable, non-tangible factors – layoffs, unexpected illness, a desire to simply shift gears among them. I think it’s really difficult to anticipate what is going to happen in your life long-term, and that thus the prudent choice is to act to minimize debt NOW regardless of if it’s OK debt or not. This is a value of mine, and it’s not going to be swayed with your number crunching. It’s not something that stems from my head, its rooted in my gut.

That doesn’t mean you have to be a slave to paying down your mortgage or pay some crazy amount and sacrifice all savings or enjoyment of life, but I think a household owes it to themselves to give themselves the sort of freedom that comes from not having a mortgage as early as it is feasible. The difference of $300,000 becomes less important since you had more time to invest more money. In that scenario, you could retire earlier, or you could downshift jobs – things you can’t do as easily if you are servicing a mortgage.

My opinion only holds for instances of a household trying to keep their primary residence over their head. Investment properties for “cash flow” purposes are frankly outside of my interest and outside of my thought processes on this and I intend to never have anything to do with investment properties. It’s beyond me — I’ll be lucky to even own a home someday.

DB

P.S. – I accidentally posted this first in “frugal vs. cheap”.

Just be sure you know EVERYTHING about your loan. These things aren’t for everyone.