Mortgage Debt Reduction

To Pay or Not to Pay Off Your Mortgage(January 27, 2006) --

Experts urge home owners with mortgage rates of 6 percent or less to sink their money into other investments.

Some home owners might be considering repaying their mortgage early in an attempt to shed the debt they accumulated via cash-out refinancings or home-equity loans at a time when property prices were rapidly appreciating. But that may not always be the best use of their money.

Anthony Webb, economist for Retirement Research Center, says home owners can achieve higher returns through IRAs, 401(k)s, and other tax-deferred accounts. Young home owners would be wise to put their extra cash toward retirement, adds Torrance, Calif.-based financial planner Phillip Cook.

However, those with excessive loan balances might want to pay down their mortgages to a more manageable level. Home owners nearing retirement age — who do not have adequate savings, do not plan to move, and do not need a mortgage deduction because they will soon be in a lower tax bracket — also might be good candidates for prepayment.

Source: USA Today, Mindy Fetterman (01/27/06)[

Ed.'s Note: Or just pay off the debt to be done with it. The economics of the scenario described above make sense in a perfect world, but there aren't too many stories of people who get into financial dire straits because they paid their mortgage off early instead of keeping it around like the rest of the world in favor of what sounded like a great, realistic idea at the time: The idea that the extra money coming in each month will actually end up being invested instead of spent. That's a nice thought, and I'm sure a minute portion of the population has the discipline & will power to do it, but the practice described certainly hasn't been overwhelmingly adopted.