The more my home value decreases, the more I want to pay off my mortgage. My heart is set on a mortgage burning party before our 15-year loan term is up. My head’s against the party: Front-loading payments on a declining asset with a low interest rate and tax break attached to it doesn’t make much sense.
Or does it?
I’ve been wrestling with my urge to pay down my mortgage for months now, and the issue came to the fore after interviewing the McDonough family, who used debt-averse-radio-show-host Dave Ramsey’s methods to pay down a bucket of consumer debt relatively quickly. They still have their mortgage but plan to attack it vigorously, and then worry about saving for retirement.
Of course, in my head I was hearing the voices of financial planners I’ve interviewed in the past whispering phrases like “But what about the magic of compound interest?” and “Historically stocks have been a good investment.” Those are good points.
Then I happened upon a blog post from Michael Kitces, a well-respected certified financial planner and thought leader who pondered the idea of investing in stocks instead of paying down debt after recently purchasing a house of his own. “If we wouldn’t tell our clients to borrow money to buy stocks in their investment account in the first place, we probably shouldn’t be telling them to keep their mortgage and direct savings to the investment accounts, either,” he writes.
Kitces, director of research for Pinnacle Advisory Group in Columbia, Maryland, told a writer on the MintLife blog that “I’m really going to spend the bulk of the next 10 years knocking this mortgage down to zero. We are radically ratcheting down savings into investment accounts and really ratcheting up payments toward the mortgage.”
It goes against what so many advisers tell you. But at the end of a lost decade — and a year when the Standard and Poor’s 500 has essentially treaded in choppy water for twelve months — there are days when it’s hard to keep faith that stocks are the way to build wealth. Investing in real estate certainly isn’t the way to build wealth either. But owning a piece of it outright and eliminating a major expense in an era of uncertainty? That’s an appealing thought.