Anonymous wrote:But you're still investing in the market when you pay down your home, you're just investing in the market for real estate. Which also goes up and down, you just don't get a monthly appraisal. You are not investing in safety: you are playing a psychological trick on yourself to feel safer, at the probable cost of a lot of income. It's like you're buying the world's most expensive placebo.

I'm wiping out debt. Would I rather owe 600K or nothing....hmmm.

But you're still investing in the market when you pay down your home, you're just investing in the market for real estate. Which also goes up and down, you just don't get a monthly appraisal. You are not investing in safety: you are playing a psychological trick on yourself to feel safer, at the probable cost of a lot of income. It's like you're buying the world's most expensive placebo.

Reading Edelman's The Truth About Money (late 90's?) really inspired me to kick my savings into gear. He made compound interest sounded soooo freakin' awesome. Even a regular person, like me, could save a lot if I just started early enough and gave my money time to grow.

On paper the numbers work out wonderfully. But the reality: when things are going good in the market it is awesome. But when the market tanks, OMG. Don't look. Yes, I know, that's the way the market works.

At any rate, I admire Edelman but I've come to realize that I crave a certain amount of safety, too. Especially as I get older. Paying down a 3 % mortgage isn't very exciting, not nearly as exciting as letting your money ride the crazy dips, hills, turns and loop de loops of the market..true enough.

Thanks 10:33. I loved listening to Ric Edelman. He makes sense. I can't believe that I have been listening to Dave Ramsey all this time.

Anonymous wrote:

Anonymous wrote:The tax deduction you get on the interest paid is still less than the actual dollars paid in interest. Zero paid is better than x% of interest as a deduction.

This.

Seriously, the world would be so much better if people could understand opportunity costs.

Anonymous wrote:The tax deduction you get on the interest paid is still less than the actual dollars paid in interest. Zero paid is better than x% of interest as a deduction.

This.

There is no guarantee that mutual funds will gain.

There is no guarantee that the mortgage deduction rules will remain the same.

Don't pay off the mortgage. If you do then in 5 years you'll be kicking yourself that you were loaned such cheap money and you paid it off. CDs will be paying more than that down the road. Heck, even now Pen Fed has 5-year CD's paying 3%.

Seriously, invest in some balanced mutual funds like Vanguard Wellington or Fidelity Balanced. Over the long-term (10 years) you should beat the less than 3% mortgage rate you are getting.

Ramsey is so obviously wrong here it kills his credibility on the rest of his advice. Particularly since it seems like the whole job of a financial expert should be to help lay people understand counterintuitive ideas, and its apparently counterintuitive to a large segment of the public why paying down a mortgage often does not make sense.

Are there no Ric Edelman acolytes to debate the Dave Ramseyans? Ric says paying off a mortgage, or even paying early, is foolish.

http://www.ricedelman.com/cs/education/article?articleId=232#.UsrMk_RDtiM

http://www.youtube.com/watch?v=zP0rP3X-nMg

Anonymous wrote:I would split it between the two. It doesn't have to be an all or nothing proposition

Great idea! But if OP is dedicated to an either/or position, I'd veer toward paying off the mortgage in a market as volatile as this one.

I would split it between the two. It doesn't have to be an all or nothing proposition

Anonymous wrote:The tax deduction you get on the interest paid is still less than the actual dollars paid in interest. Zero paid is better than x% of interest as a deduction.

This is a non-sequitur. Obviously the tax deduction doesn't cancel out the interest. But it affects whether paying down a mortgage or investing in the market is a better choice. Your market returns don't need to beat the interest rate on the loan, they need to beat the interest rate on the loan minus the tax savings from paying that interest. That means a market return lower than the interest rate still pays off better than paying down the loan.

But money is a finite object. The cost to using the money to pay for the mortgage means that money can't be used in investments that may get a better return. So if the rate of return is around 5% but the mortgage is only 3% then you are losing that 2% return

The tax deduction you get on the interest paid is still less than the actual dollars paid in interest. Zero paid is better than x% of interest as a deduction.