You know I am an advocate of investing versus paying off your mortgage, at least until you have your entire financial and investment plans fulfilled. You know that the reasons come down to liquidity, safety and rate of return, the latter being the point I am going to target today.
Most Americans, and especially those falling prey to the glamour of a paid off mortgage through mortgage acceleration programs such as the Money Merge Account™ from United First Financial, do not realize the true cost of their financial decisions. They fail to realize that Everything is 100% Financed!!! Yes, even when you pay cash, you are essentially financing it.
When it comes to pay off your mortgage, more education is needed to show all strategies that can ensure your quickest path to true financial freedom. Since it is easy to get a rate of return from investments that surpasses that of the cost of your mortgage (especially net cost), strategic equity management can put you in a position to pay off your mortgage even faster than any mortgage acceleration product out there, even the MMA!!!
How so? You get the rules of money working for you, such as the time value of money. The numbers favor investing over paying off your mortgage, and it requires very little discipline to do so. All that is required is knowledge and an understanding of how money works.
The picture above is of my portfolios I am using in the CNBC Million Dollar Portfolio Challenge. The key point I am going to make is how easy it is to make money, but don’t focus on the dollars made, only the rates of return I am getting.
The worst performing portfolio is the riskiest one I did, a gamble which didn’t pay off. Even still, the annualized rate of return is 2.7% and keep in mind that this portfolio is very risky, something I do not recommend by any means. My balanced portfolios are the ones doing the best and even if I stopped today, I would have tripled the net cost of my mortgage. Even if I didn’t use a tax-free vehicle to accomplish this task, I would still double it. And that is being fairly conservative in my investments.
I am not saying go refinance your house and put the money into the stock market. What I am trying to point out is that it is not hard to make more money than your mortgage costs you, and you can do so in many ways. My tax-free bond fund yielded over 6% last year, even with the mortgage meltdown. Other investments I have are beating that, some by a long shot.
The truth of the matter is that Americans do not contribute much, if at all, to their retirement accounts, so using a mortgage can give them that edge. Even more fail to implement a college savings plan for their kids, thinking they can take a mortgage out later, but tax laws can destroy that plan.
The bottom line is that you need to develop a comprehensive financial plan that includes your mortgage and good luck finding a financial planner that does that by himself. The vast majority do not even place real estate in an asset class, let alone realize the potential behind utilizing your mortgage as a financial tool.
Whether you are looking for the fastest strategy to pay off your mortgage or if you are developing your financial and investment plans, make sure you work your mortgage into the overall equation or it could cost you plenty.
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Would you recommend accelerating mortgage payments through additional monthly principal payments, or would you say that its better to put that money into a savings account or other investment account to earn interest?
To answer that accurately, it depends on the person. That eing said, for the majority of Americans, they are better off investing versus paying off their mortgage.