Comments on: Money Magazine Takes on Six Financial Dilemmas

By: Question From a Reader: What to do With My Mortgage?—AllFinancialMatters

Question From a Reader: What to do With My Mortgage?—AllFinancialMatters — Mon, 04 Feb 2008 21:56:44 +0000

[...] Money Magazine Takes On Six Financial Dilemmas [...]

By: MichaelR

MichaelR — Sat, 22 Dec 2007 21:10:20 +0000

The fact that Money Magazine does not realize that the standard couple deduction wipes out the first $10,700 of the mortgage interest deduction tells you more about the airheads at CNN/Money than that article does about personal finance.

I have a variable rate, 30 year loan, and I pay extra each month. As a result, every year my required payment goes down. It is like getting a raise.

With a recession on its way, is now a good time to invest in the stock market? I’ll take the guaranteed return by paying down the mortgage, thank you.

By: Borrowing Against Home Equity, Paying Off A Car Loan @ My Roundup

Borrowing Against Home Equity, Paying Off A Car Loan @ My Roundup — Sun, 16 Dec 2007 17:45:01 +0000

[...] All Financial Matters covers the financial dilemma of using funds for prepaying your mortgage or for investing purposes (care of Money Magazine). Though “investing” may make the most financial sense, it may not necessarily be the action you should take depending on your profile and circumstances. [...]

By: Toby

Toby — Thu, 13 Dec 2007 15:08:14 +0000

Quoting the article: “if you are investing for a near-term goal and don’t want to take any risk, you can make a stronger case for prepaying your mortgage.”

Huh? How is prepaying a mortgage with 25 years left on it considered a “near-term” goal? Locking your cash in home equity doesn’t seem like the place to stash cash you need in the near-term. Perhaps they think you should take out a hel(oc) to pay for Christmas gifts.

Also @ Jenn: Paying off your mortgage doesn’t “save you money”. Your mortgage does not exist in a vacuum, it is part of your portfolio alongside your savings, investments, and retirement accounts. So a decision to do one thing over another doesn’t save or cost you money, per se. It’s just an investment with a given return. You can talk about the money you did not pay in interest, but you should temper that with the returns you could have made investing. The risk of investing in, say, the stock market should be tempered with the risk of locking a majority of your net worth into your home in a down housing market with a potential recession looming.

Saying you “saved money” is an oversimplification. Finally, peace-of-mind can also be had through a giant pile of money…trust me on that one.

By: Michael B. Rubin

Michael B. Rubin — Thu, 13 Dec 2007 14:31:24 +0000

A great problem to be sure and clearly one where both math and emotions play a role. Knowing yourself here helps too. Once you pay into the house, it’s harder to get that money back (you’d have to sell the home again or borrow against the equity – along with the related costs). That’s a good thing if you won’t actually do so and if the difficult access to your wealth serves as a deterrent from future overspending.

I agree investing wins, but only if you have the discipline to see that the money is invested appropriately and that it stays there. In this way the discussion has parallels to the “buy term and invest the difference” argument I would also support.

By: Eddie Z

Eddie Z — Thu, 13 Dec 2007 14:19:43 +0000

I believe Curtis is correct. You must consider the standard deduction when comparing the tax implications of mortgage interest. Why not invest in both paying your mortgage off sooner as well as in the market, making sure you have your emergency fund intact.

By: Jenn @ Frugal Upstate

Jenn @ Frugal Upstate — Thu, 13 Dec 2007 11:56:31 +0000

We were actually faced with this. 3 months after we started paying the mortgage on our previous house we suddenly were in the circumstance where we could pay off the entire thing (and have a bit left over). After some thought, we decided to go with the “sure thing” and pay off the mortgage-why? Well we decided that regardless of what happened, by paying off the mortgage we KNEW we were saving thousands of dollars-so even if it wasn’t the best we could do, it was still saving us a lot and providing peace of mind.

By: muddlehead

muddlehead — Thu, 13 Dec 2007 04:34:48 +0000

best middle class conundrum of our time. i say diverisfy. you got your house. you got your stock market money. too much of one at the expense of the other, not good.

By: Curtis

Curtis — Thu, 13 Dec 2007 03:33:01 +0000

But, what happens when their math is all wrong? I DON’T save 28% on my mortgage interest. I save MUCH less than that, because the first $10,500 of interest each year I would get as a deduction anyway (married filing jointly). That makes the return look much closer to 6.2% than 4.5%. Then, once you are inside your standard dedution, you get no savings, so the full 6.2%

I detail some of that in my post from a while back. http://realworldfinances.net/?p=21

By: Danny Tsang

Danny Tsang — Thu, 13 Dec 2007 03:28:19 +0000

The bottom line is one route is more conservative than the other. Paying off the mortgage gives you a guaranteed lower ROI, like a bank CD. Leveraging gives you higher ROI (at times) and tax benefits on the mortgage debt side. Personally I would do certain things at certain times. If the right opportunities are there, I would leverage. When I’m older and looking towards wealth preservation I’d pay off the note to get it off my back.