Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 0
I've been reading this board for a while now and I think that people may find it a bit more fruitful to go in a different direction with the debate about paying down your mortgage. Perhaps we need to think about opportunity cost in lieu of thinking about whether or not people actually carry mortgages.

I would contend that the way millionaires think about this is to consider the relative returns and risks of paying down their mortgages relative to putting the money elsewhere. Thus, someone with a high risk tolerance might take the money that they otherwise would have applied towards extra payments on their mortgage and put it towards growing their business or into the stock market. Alternatively, people can think of making extra payments on the principal portion of their house as having a guaranteed return--they are guaranteed to save money on future payments (assuming that they stay in their house). I think that this assumption is warranted by TMM, as evidenced by the large amount of appreciation the average respondent has experienced in the value of their house.

Personally, in deciding whether or not to put extra towards the principal on my house, I would compare my mortgage rate against treasury rates (since I would get taxed on treasuries and get tax deductions on mortgage interest payments, I believe that the two rates are roughly comparable). If my mortgage rate were higher, I would consider paying down the principal on the mortgage a better investment, while if the treasury rates were higher, I would consider putting my money there in lieu of putting it into extra payments on the principal portion of my mortgage.

Perhaps if in your quest to becoming wealthy you think about the relative returns of investments and choose to invest based on those returns (and their associated risks) you will find yourself further down the road in your quest than if you blindly follow the results of a survey. Of course, YMMV.

food for thought,
Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.