“None are more hopelessly enslaved than those who falsely believe they are free”

Monday, January 25, 2010


There are two arguments against NOT paying off your mortgage.

Some “experts” will tell you that you can make out better by investing, claiming you’ll get higher returns in the long run by taking the extra money you’d send to your mortgage company and picking stocks (or other investments) that would normally outperform the money saved by paying off a typical mortgage at say, 6 percent interest. But I urge you to look at your amortization schedule and actually see the money you’re literally giving away to the bank when you send your payments according to their schedule. When you do that, you’ll get a sense for just how crazy the argument is to keep a mortgage and gamble on the market. This argument proposes you risk a sure return for the prospect of gains that might never come.

The next argument you hear is that your mortgage is a good tax shelter - one of the few good tax breaks the average guy has left. Again, it is critical that you understand The Man’s corrupt, twisted logic. For every dollar that you’re paying your bank in interest on your home mortgage, the government will send you 35 cents (assuming you’re in a high tax bracket) at the end of the year.

Does trading a dollar for 35 cents sound like a good deal to you?

You need to understand that a sound financial goal needs to be paying off your mortgage as fast as you possibly can.

Here’s a guy who actually has it right. http://www.investopedia.com/articles/pf/05/payoffmortgage.asp

The beautiful thing is that there are tools /programs that teach money management, cash-flow generating principles under which you can pay any 30 year mortgage in 10 years or less.

If/when you look into it, I’m sure you’ll agree that paying off your mortgage is the way to go.

There’s a Money Merge Account or MMA program and another, less expensive version called the equity genie. The other program I found was the absolute cheapest, at a purchase price of $99, but this is really nothing more than a glorified mortgage calculator. There might, in fact, be others but I’ve only looked at these three.

Equity Genie
Max my Equity
The Money Merge Account program from US First Financial

The basis of such a program is getting a HELOC (Home equity line of credit) and using it to cover all your non-mortgage living expenses. IF you have the equity in your house and a fairly good credit score to be able to obtain a HELOC FOR THE PURPOSE OF PAYING OFF YOUR MORTAGE, do it! They say the program will work without a HELOC, and it will provided you have a good cash flow to work with, but ideally you need some sort of low interest charge account (or a high interest checking account) with a fairly high balance (enough to cover your monthly expenses) for the benefits of the program to be maximized. Under this system, your expenses are paid from your credit card, savings, or HELOC as LATE as possible (to minimize your interest expense). I looked into the programs and came away impressed. To me, it seems like an excellent way to build a solid real estate portfolio, and The Ogre’s on his way.

Take note that the MMA from United Financial is offered via a Multi-level Marketing (MLM) campaign and those always drive the price of the product up as their “agents” or “reps” have to be paid. I don’t doubt the value of their program but to me, the value quotient is just not there.

Also, keep in mind you could theoretically implement these practices yourself, without the use of a software program. Start using a high-interest checking account, pay your bills at the last possible moment (using an online scheduler) and then send every cent you have left over to the mortgage payment (assuming you have no other higher interest debts). The real benefit of such programs, like the equity genie, is that doing it becomes mindless.


No comments:

Post a Comment

Please leave a note here for The Ogre if you want to comment on this topic. ALL comments, stories, personal accounts and anecdotes are welcomed and encouraged. I'll do my best to respond, if needed.