{"id":17487,"date":"2012-12-20T07:00:51","date_gmt":"2012-12-20T12:00:51","guid":{"rendered":"http:\/\/www.ino.com\/blog\/?p=17487"},"modified":"2012-12-19T16:47:10","modified_gmt":"2012-12-19T21:47:10","slug":"when-to-pay-off-your-mortgage","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2012\/12\/when-to-pay-off-your-mortgage\/","title":{"rendered":"When to Pay Off Your Mortgage"},"content":{"rendered":"<p>My good friend Rob recently paraphrased Warren Buffett as saying, \u201cIf he knew where he was going to live for the next decade, he\u2019d buy a house with a long-term mortgage.\u201d Buffett thought a mortgage was a good hedge against inflation, because the homeowner would pay off the mortgage with cheaper dollars down the road.<\/p>\n<p>My own mortgage caused great conflict between the emotional and logical sides of my brain. When I was contemplating paying it off, I spoke with a financial counselor and explained that I was self-employed and my mortgage was my largest monthly payment. I suggested paying it off to eliminate stress. He pooh-poohed that idea, and insisted that I could easily earn more after taxes than the cost of a first mortgage.<\/p>\n<p>I asked if his mortgage was paid off. He looked at me and said, \u201cOh hell yes!\u201d I was flabbergasted. How could he advise me to do one thing when he\u2019d done the exact opposite? He explained that his wife was from Germany \u2013 the old school where you pay your bills and keep out of debt. Were it not for her, he\u2019d gladly have a mortgage.<!--more--><\/p>\n<p>When my son purchased a new home, I suggested he ask the lender for an amortization schedule, a report showing what portion of each payment will go toward the principal and what portion is interest. He was shocked to realize well over 90% of his payment was going toward interest. It wasn\u2019t until the last five years of his mortgage that the bulk would be applied to the principal. Everyone with a mortgage should pick up \u2013 and read \u2013 an amortization schedule from the lender so one knows exactly what portion of each monthly house payment actually reduces one\u2019s mortgage.<\/p>\n<p>Paying off your mortgage does change your life. You sleep better, and I imagine my blood pressure dropped ten points. I\u2019ve never met anyone who regretted paying off his mortgage. Once we made the decision, we never looked back.<\/p>\n<p>However, I readily admit that my emotions prevailed in my decision to pay off our mortgage. In an effort to give both sides of the argument, Vedran Vuk, lead analyst for <em><a href=\"http:\/\/www.millersmoney.com\/go\/bwaBr\/INO\">Miller\u2019s Money Forever<\/a><\/em>, has shared his thoughts on when it makes solid financial sense to invest elsewhere and not pay it off. He makes some excellent points\u2026<\/p>\n<h2>When Not to Pay Off the Mortgage<\/h2>\n<p>By Vedran Vuk<\/p>\n<p>Dennis\u2019 financial counselor gave him standard mortgage advice, but he left out some important factors. If investors can earn a greater after-tax return elsewhere with minimal risk, they should do it rather than paying off their mortgage. Over the last 30 years or so, you could safely expect 10% annual returns on the stock market, and at worst, market crashes were short-lived and stocks recovered in no time.<\/p>\n<p>Unfortunately, we don\u2019t live in that world anymore. Investing is now filled with worry and anxiety. Next year, the market could rise 10%, or it might drop 40% and stay there. Paying off your mortgage is a guaranteed way to save money. Putting money into the stock market is not.<\/p>\n<p>Since the market is still shaky and bonds are paying close to nothing, it makes sense to make a few additional mortgage payments. But suppose the clouds over Europe and the rest of the world economy disappear \u2013 then it might be wise to put a little more money into the market.<\/p>\n<p>However, another scenario is much more likely: rising interest rates. If interest rates rise in the next few years, paying off your mortgage would be a mistake. If you can earn 6% or 7% on US Treasuries or AAA-rated corporate bonds, paying off a mortgage locked-in at 3.25% is clearly not a rational decision, because these investments carry minimal risk.<\/p>\n<p>If you can earn a higher return than your mortgage rate with limited risk, don\u2019t pay off your mortgage. But if bond yields are pitiful and market risk doesn\u2019t justify the return, stick to enjoying the emotional comforts of paying down your mortgage.<\/p>\n<p>Whether you\u2019re considering paying off your mortgage or not you\u2019ll want to make sure this works within your retirement plan objectives. <a href=\"http:\/\/www.millersmoney.com\/go\/bwauK\/INO\">Click here to heck out my short letter on how to start your plan or just get a \u201csecond opinion\u201d on your current plan<\/a>.<\/p>\n<p>By: Dennis Miller<\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>My good friend Rob recently paraphrased Warren Buffett as saying, \u201cIf he knew where he was going to live for the next decade, he\u2019d buy a house with a long-term mortgage.\u201d Buffett thought a mortgage was a good hedge against inflation, because the homeowner would pay off the mortgage with cheaper dollars down the road. [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":41,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[2105,4345,4647,7948],"class_list":["post-17487","post","type-post","status-publish","format-standard","hentry","category-general","tag-casey-research","tag-caseyresearch-com","tag-dennis-miller","tag-guest-bloggers"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.4 (Yoast SEO v23.6) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>When to Pay Off Your Mortgage - INO.com Trader&#039;s Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ino.com\/blog\/2012\/12\/when-to-pay-off-your-mortgage\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"When to Pay Off Your Mortgage - INO.com Trader&#039;s Blog\" \/>\n<meta property=\"og:description\" content=\"My good friend Rob recently paraphrased Warren Buffett as saying, \u201cIf he knew where he was going to live for the next decade, he\u2019d buy a house with a long-term mortgage.\u201d Buffett thought a mortgage was a good hedge against inflation, because the homeowner would pay off the mortgage with cheaper dollars down the road. 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