Free Ebook.

Enter your email address:

Delivered by FeedBurner

« Buying a Foreclosed Property | Main | Improve Your Investing Return with Vanguard Admiral Shares »

May 22, 2007


Feed You can follow this conversation by subscribing to the comment feed for this post.

You can also consider this a case of where it makes more sense. Is the after tax cost of debt less or more than the long run rate of appreciation? Only in metropolises is it less. In cities, it is neutral. In the country it is more, and most if not more than your investment gains would be paid in debt service.

I find it hard to believe that you have never seen anyone successfully carry a mortgage and invest at the same time. I buy index funds through a monthly auto investment program while maintaining a home mortgage. I do this because I am young and willing to assume the risk of keeping more assets in the market. If I were closer to retirement, I would pay off the mortgage. FYI, I only do this after maxing out 401k and IRA contributions.

I guess I'm of the former group and in the minority. Why give the bank my hard-earned cash for them to lend and make more money, when I can use it to make more money for myself?

Hey FMF,

Long time no blog! I am back on the blogging seen having gone into retirement at the tender age of 50. I still want to let you know that I still disagree with you on this one.

One of the chief reasons I was able to retire to Scottsdale, Arizona from Lansing, Michigan was that I used my mortgage loans to free up home equity which I then invested in reasonable investments in the market and real estate around the country. For example, a home that I bought 5 years ago doubled in value in three years. If I had all my cash tied up in my home, earning nothing, I would still be sitting in Michigan. For 20 years, I carefully never let my home have more equity than 20%. When it had more, I refinanced and pulled the cash out and put it to work elsewhere. This took time and I was VERY VERY careful with what I did with this cash. But it paid off in spades!

I believe that if you have the cash to pay off your mortgage, then your mortgage IS, if you want it to be, paid off.

I have a big fat mortgage here in Arizona and thankfully the cash to pay it off if I desire. Last month, the cash that is not tied up in my house went up in value 2%. That is a WHOLE lot of mortgage payments AND cash that my house would not have paid me. To top it off my mortgage is tax deductable so my net cost is really only around 4%.

Come on FMF, you are a very smart guy. Surely you must concede that your advice does not apply to all. Surely there are some disciplined people who can take advantage of the arbitrage. If you are paying 4% for money and can get an 8-10 percent return, how can that not be better.

Sorry, like Simon Cowell would say, gotta disagree with you on this one.

I see you are past a million visits! Holy crap batman! You are a blogging animal. Keep up the good work and open up that mind of your just a little bit.

All the best,

David A. Porter
Mortgage Broker Coaching
Scottsdale, Arizona!!!!!

Hmmm. I'm a bit concerned about this. I don't like to think I am any better than average when it comes to self-discipline - mostly because I'm not.

I'm in the middle of buying my first house at the moment (and have been for months :( ) and there isn't really any extra cash to add in to the mortgage payment unless I cut back on my retirement / other investments.

I know that either investing or paying off the mortgage is a good option, and for any one set of circumstances, one of them will be financially the better decision, but do I really have the will power to keep investing if no one else does?

David --

So good to hear from you!!! And that you've escaped the great tundra up north!

Though it's probably a bit hot down there now, huh? ;-)

If I wanted to, I could probably retire at 50 as well (still several years off for me), but why do that? What would I do with my days? Plus, it doesn't look like you're totally retired either (still have a job/company.)

A few thoughts:

1. Yes, you have to be very careful in making sure you manage your cash correctly. You were and you did. Most aren't and can't.

2. I agree with you that in theory your way is best (by the numbers) but the practicalities make the other option better for most people. (in other words, they aren't careful like you note to be.) I will concede that no one bit of financial advice applies to every person all the time. That's why I wrote my post saying that the answer to every personal finance question is "it depends." Maybe you missed that one in the 700 or so pieces I've cranked out since I last heard from you.

3. I'll give you this one by a nose if you say I was correct on the zero-interest mortgage debate. ;-)

So very good to hear from you, David. Stop by more often if you get the chance and be sure to ready that guest room for me come January. ;-)


I guess I define "retirement" as getting to the point where you don't have to get up every morning and go to the office to make a buck. You are right, at the age of 50 I am way to young to go fishing everyday.

The company you mention is a new company that I created as a way to keep my mind and ambitions stirred up, but primarily as a way to give back to the industry that allowed me to be where I am.

Arizona is like a different planet from Michigan. We are having a blast and we do have a guest room if you ever need it. Now that we are settled here, I have created a new blog and look forward to rekindling our relationship.

Keep up the good work!

The comments to this entry are closed.

Start a Blog


  • Any information shared on Free Money Finance does not constitute financial advice. The Website is intended to provide general information only and does not attempt to give you advice that relates to your specific circumstances. You are advised to discuss your specific requirements with an independent financial adviser. Per FTC guidelines, this website may be compensated by companies mentioned through advertising, affiliate programs or otherwise. All posts are © 2005-2012, Free Money Finance.