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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5069  
Subject: Re: Update and next step(s) Date: 1/20/2004 2:22 AM
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(1) Refinance your existing mortgage to as low a fixed rate as you can get (assuming that this will get you a lower-than-current rate, under 6.5%, and save you money month-to-month - or that it will get you a lower rate and you can take cash out without raising your payments, which would be even better), then make only the payments required on it.

Here is the opposite of this post. If you look at the Buying/Selling a Home Board there are a lot of good suggestions on this:

http://boards.fool.com/messages.asp?mid=20162957&bid=100144

In particular. If you think that you can pay your mortgage off in 3 years and you know that you have the discipline to do it then go to a 3 year ARM. You can drop your rate down to the 2-3% range. You will have even more cash flow then your current mortgage and you pay your mortgage off in 3 years or less.


On a strictly financial basis, you are - on average - more than a full percentage point better off to take a $12,000 lump now and invest it in the S&P500, rather than improve your cash flow by $1000 a month for a year and invest that money.

Again on a strictly financial basis, and after allowing for risk, if you can take out a long-term loan at 6% or less in order to make a long-term investment with an average return of 7% or higher, you are clearly ahead. If you do this by refinancing an existing loan (for longer remaining term and/or lower rates) to get cash out without increasing the payments that you are already comfortably making, it looks like a good bet.

But that's a financier talking, not an economist. People (including some "economists" and their employers) sometimes confuse the two, but they are very different.

A financier talks about money.

An economist would ask you what you value, and how much you value it compared to other things.

If you value highly the security of owning your home outright, and are less impressed with the security of knowing you could pay off the loan on your home in a week any time you want, then the economist might well tell you to pay off your mortgage as quickly as you can.
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