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Daily Links: Pets, Films, and Mortgage Savings Print
Tuesday, 7th August 2007 (by J.D.)This article is about Spare Change
I’ve spent the last couple hours replying to your e-mail messages, sorting through the links you sent me while I was on vacation. I kept wishing that I had a way to share more of these with GRS readers; then I remembered my early-morning “daily links” section! Here, then, are some stories passed along by your fellow readers:
Business Week: The Pet Economy
“Americans spend an astonishing $41 billion a year on their furry friends,” this article says. Though this article makes some good points about Americans’ obsessions with their animals, you’ll never hear me say that people shouldn’t have pets. I believe that if you’re sensible, pet ownership is one of the cheapest ways to bring happiness to your life. But maybe you shouldn’t listen to me — I have four cats! [via Joyce]
Los Angeles Times: Eight Golden Lessons from the Silver Screen
For several months, I’ve been planning a post on this very topic — personal finance lessons from the movies. The L.A. Times beat me to it. It’s a fluff piece, to be sure, but it has good advice. There’s even advice from one of my favorite movies, The Big Lebowski. [via Vincent]
Yahoo! Finance: How to Save Big on Your Mortgage
In June, we discussed whether it’s best to invest or to prepay a mortgage. At Yahoo!, columnist David Bach writes: “In my 9 years of experience as a financial advisor for Morgan Stanley, the clients who paid their debts off early — specifically their mortgages — retired 5 to 10 years before those who didn’t.” Bach offers several tips for accelerating mortgage payments. (I must admit: these tips really appeal to me. I’d love to pay off our mortgage early.) [via David Hatch, who submits lots of great links]
That’s it for today. I’ll share more reader-submitted articles tomorrow.
August 7th, 2007 at 9:23 pm
It is my opinion that for those who invest wisely, it is probably not in your best interest to pay off your mortgage off early. This is especially true if you have a low fixed rate.
However, for those that would be sticking into a low-yield savings account the money that could be used to pay off a mortgage, then it makes a lot more sense.
I would say that it probably pays more to learn how to invest wisely than to pay off your (low-rate fixed) mortgage early. You are essentially borrowing at a low rate and getting a higher rate of return.
One final thing to think about… say you were to borrow at 100K at 6.5% rate, and get an average annualized return of 9% over a long period of time. This will result in far greater appreciation than you had you not borrowed at all and invested 100K at a 5% rate. Compounding works in a funny way.
August 8th, 2007 at 1:49 am
How to save big on your mortgage: Don’t have one. Invest the money you save renting over the money you would spend on a house (mortgage, rates, water, tax, improvements, insurance etc) and retire way earlier.
Interesting tip, Wayne. Not something I would have believed if you hadn’t said it and checked it out in excel. Sure enough in 30 years time, the 100K@5% is worth $432194.23 while the borrowed 100K is worth $440768.84.
But you have to wonder why someone would choose a %5 investment when they also had a %9 investment available. Perhaps a better example would be to compare investing just 100K at %9, or to use the 100K as collateral for a 100K loan, the total of 200K you then invest at %9. The difference in the final amounts is quite staggering.
August 8th, 2007 at 4:17 am
I also think that for people like me, who aren’t sure if they want to live and retire in the house they currently own, paying the thing off in advance or even accelerating payments toward principal, it’s not necessarily a good thing.
I’d rather pay off credit cards or contribute more to my 401k.
August 8th, 2007 at 6:02 am
Concur w/ W.Mize, I have a low rate mortgage on a “below our means” home (it’s a great home, but we decided to opt for a moderately priced, re-sellable (very rentable) home now…) which we don’t anticipate in living in forever. So paying down mortagage on it early doesn’t make sense for us. I put all the extra $$ to pumping up our residual income pipelines
August 8th, 2007 at 9:40 pm
[...] compounding is subtle and filled with nuances. In a comment on yesterday’s daily links, Wayne wrote: One final thing to think about… say you were to borrow at 100K at 6.5% rate, and get an [...]
August 9th, 2007 at 4:14 am
“In my 9 years of experience as a financial advisor for Morgan Stanley, the clients who paid their debts off early — specifically their mortgages — retired 5 to 10 years before those who didn’t.”
That could mean 2 things:
1. People payoff mortgage early, which leads to saving more, which leads to being able to retire earlier (What Bach implies).
2. Some people are just richer and were going to retire early anyway. Those people use some of their extra cash to payoff early.
Knowing 2 things are related (payoff_early, retire_early) doesn’t tell us which one causes the other.