Paying Down Your House Is Stupid
I've just discovered this blog: Real Estate Mega Book. In the article, he gives three reason why you should not pay down your mortgage:
- You can make more than you save
- If you have spare money, the spare money can be used as a safety net
- There's a tax deduction, so you don't save as much as you think. You think you will save what you normally pay on your mortgage payment, but the real amount that you save is the mortgage payment minus the tax savings that you get.
Paying down a mortgage is stupid if you still have a long way to go. Basically, once you put the money, the money is tied up and you can’t get it back out readily. For example, if you have 100k available and you dump it into your mortgage and you still have another 500k to go, then that 100k is not going to do you much good. You have to pay your monthly mortgage every month, so your cash flow hasn’t changed. You have not changed how fast your house appreciates. The only advantage is that you pay off your mortgage sooner, and the amount you used to pay in your mortgage can be used to invest in other stuff. But is it really that big a deal. So you pay off your mortgage in 25 years instead of 30 years. Whoopee-dooo! With stocks investing it is better to invest in stocks early in life, and you will gain more from it than paying down your mortgage. If you really want to pay down your mortgage, invest in stocks, and when you do have enough, pay it all down in one lump sum at the end. If you need to refinance, don’t pay it down until it is time for you to refinance.
Read my article:
http://wisdomfrommywife.blogspot.com/2007/03/home-equity-in-your-house-is-not-yours.html
Common Sense Personal Finance
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