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Old 06-26-2017, 08:32 AM   #11
al_carl
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Originally Posted by Its Catchy View Post
Financial guru Ric Edelman harps and harps against 15 year mortgages, paying off your home early etc. His advice is to use leverage as much as possible, invest the difference in the market and let the law of averages work for you. Which is sound fiscal advice that works.

Financial guru and self help king Dave Ramsey preaches exactly the opposite. Live debt free, pay off your house as fast as possible and neither a borrower or a lender be...
I am firmly in the Dave Ramsey camp. Paid off my last consumer debt March 31, 2008 and haven't looked back. Still working on the house but that's slowed down due to a kid entering college.

My retirement accounts are growing quite nicely (I'm 40) and I'm set to live comfortably and have plenty to leave to kids and grandkids.

I think the difference between the 2 really comes down to using your own money or someone else's to grow more money. I'll stick to my own, there's much less headache and hassle.
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Old 06-26-2017, 01:58 PM   #12
goatchze
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You never mentioned what your mortgage rate is?

Keep in mind that your interest is deductible on your home mortgage. So to compare to what the money is going to do for you, you have to keep that into account.

I was facing a similar situation, and decided to invest the money rather than pay off the mortgage. Yes, paying off a portion of the mortgage is the lowest risk option with a known reward. You'll save your payment x your "effective" rate. The only risk is that your home value declines.

Here's how the math worked out for me:

Mortgage rate: 3.5%, no PMI or escrow. After taxes, "effective rate" is 2.52%. This rate is essentially fixed for all eternity (unless they change the tax law).

Intermediate-duration municipal bond Mutual Fund: distribution yield 2.8%.

If you take the 0.09% fund fee into account, it's almost awash from a numbers standpoint (2.52% vs. 2.71%). I chose the bond fund for liquidity purposes. If I put the money towards the mortgage, it's gone, as far as I'm concerned. Sure, I could take out a line of credit if I needed funds, or a second mortgage. But both have upfront costs and high rates. Meanwhile, i can leave the cash parked in the bond fund that could be liquidated at the end of any trading day. There is the risk to principle in an environment where rates are expected to rise, but not enough to matter in the near term.

And, if I ever decide I've had enough, I can always sell the bonds and pay-off that part of the mortgage. Or, if I decide I want a bigger spread, I could always sell the bonds and park in, say, a long term fund yielding 3.6%.

I like keeping my options open.
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Old 08-30-2017, 12:50 PM   #13
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Regarding interest being tax deductible. Not always the case. Would depend on if the Interest and taxes(among other things) are enough to not use the standard deduction. Taking out the Escrow for taxes and insurance, doesn't sound like he is carrying too big a balance.
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