Thanks

Personally, watching that “minimum monthly payment” number go down each month is all the psychological boost I need. (And yes, I know to pay more than that amount.)

People have different backgrounds and different attitudes about money, and different things motivate different people. Some people can reap the benefits of the faster debt repayment even though it takes longer before they pay off their first card. But others need the extra motivation, and want to see that first card gone. This isn’t the fastest way to do it, but if you get frustrated by having to send out the same number of bills month after month, then it makes a lot of sense to get rid of one of them! To stick with the most logical course in this case would be counterproductive.

I agree with your basic point that people ignore “inconvenient” math when they dislike the results.

I know the topic is not easy because I am trying to tackle it bit by bit in a series of articles–and I see 3 more articles for me on this page with comments, so thank you for the inspiration.

Taxes are an issue, but when most people prepaying a mortgage lose the tax deduction, so I think that balances it out.

@J: Thanks, I tried to stress the point that mortgage example only applied to those who believe the market will grow 8-10%. If you don’t believe that and think it will be less than your mortgage, then it’s a smart move to pay off the mortgage.

I’d say that 90% of people (for better or worse) subscribe to the 8-10% market return notion. And probably about 70% of that 90% think they are better off taking paying off their mortgage even if it’s at a significantly lower rate. This tells me they really don’t hold their belief of the market returning 8-10%, they are bad at math, or they are investing with psychology instead of math. Something has to give.

Keep up the good work!

I think having more of your mortgage paid off can be an advantage in a couple other ways. You have the ability to get HELOC’s easier. Also, I think you have some timeline and money flexibility with selling your current house and buying a new house if you have more money into the current house.

Of course, the point remains, if you made more money through the 8-10%, nothing stops you from dumping it into the mortgage at any time, and theoretically, you’d be ahead of where you’d be had you put the money into the house over time.

The stress of worrying for the next 20 years about whether or not I’ll lose my job while I work to pay off my mortgage early isn’t worth it to me. I may well die before the 20 years is up from some stress-related illness! :)

I agree with you on the mortgage argument as well, and think it is again an example of doing what is ‘easy’ versus ‘smart’. Its easy to just write another check to the bank to pay off debt because its a no brainer (everyone agrees that its good to pay off your debts & to pay off earlier is even better). Deciding where/how to invest that money takes work.

However, I will add to what Brip Blap says regarding the difference between market returns of 8-10% and what you actually net. He mentioned inflation and taxes as reasons for getting less. I think even bigger drains are expenses and the inability of most individual investors to match (much less beat) market returns. I’ve written that Morningstar now publishes Investor Returns which in many cases badly trail traditional time-weighted returns. It turns out that individual investors often buy a hot stock fund, just before it cools off and sell funds that haven’t performed well, just before their area of focus comes back into vogue.

The bottom line: it can be misleading to cite the 8-10% figure, without realizing that most individuals probably don’t achieve that over the long run, net of expenses.

Paying off a mortgage has a guaranteed 6% (in this example) rate of return. The market could be more, and could be less. However, if you already have 401ks and 529s and IRAs heavily in the market, paying off your mortgage early (to me) is primarily a way of diversifying into real estate without becoming a landlord – so it makes sense from that point of view, too. I think a strong argument to be made against paying off the mortgage early is the premature loss of the tax benefit, but then again tax laws change and nothing is for sure in that regard.

As far as paying off debt goes, I’m a little bit perturbed that the advice is not always always always pay off the highest interest rate first. I mean, it just doesn’t make sense to me otherwise. But then again, I have only one debt (mortgage) so I have a different mindset altogether, since from my earliest days debt avoidance has been the primary goal of my financial life.