Comments on: Daily Links: Pets, Films, and Mortgage Savings

By: John

John — Thu, 09 Aug 2007 11:14:04 +0000

“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.

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By: Daily Links: Compound Interest, Web Income, and Happiness ? Get Rich Slowly

Daily Links: Compound Interest, Web Income, and Happiness ? Get Rich Slowly — Thu, 09 Aug 2007 04:40:55 +0000

[...] 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 [...]

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By: Jose

Jose — Wed, 08 Aug 2007 13:02:34 +0000

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

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By: William Mize

William Mize — Wed, 08 Aug 2007 11:17:14 +0000

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.

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By: Gwyn

Gwyn — Wed, 08 Aug 2007 08:49:23 +0000

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.

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By: Wayne

Wayne — Wed, 08 Aug 2007 04:23:40 +0000

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.

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