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Author: yddeyma Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308882  
Subject: Re: Why is Mortgage Debt "Different" Date: 3/5/2014 2:15 PM
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Thanks AJ, vkg and 2Gifts!

I think I get it now. From a numbers standpoint, I may come out ahead by paying extra on my monthly principal vs. putting the money in regular savings. But I assume the risk of having no extra cash and no way to get the cash out of the mortgage if I needed it....it's almost like putting money in a hole until the mortgage dies. Even though I'm saving money on the interest, I've got no flexibility.

This makes more sense now, because really what I am after is more cashflow flexibility. Paying the mortgage off was just my attempt at achieving that. I could achieve the same thing by investing money somewhere that generates income...or saving up enough to live off the balance until retirement. Using really simple math I ran the following scenarios for dates when I'd have enough to kill the mortgage:

Dec 2020 - Extra $1k towards mortgage
April 2022 - Invest $1k @7% with 15% tax on earnings, pay off balance
Oct 2023 - Savings @ 1%, income tax on earnings, pay off balance

The first I have high risk due to inflexible cashflow. The last my money won't be working very hard for me. Seems logical to pick the middle road, but then I have to figure out where to invest it. But that is probably a topic for another discussion.

Thanks for the help evaluating!
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