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Subject:  Re: Ordinary People...Extraordinary Wealth Date:  3/1/2001  10:00 AM
Author:  waxurt Number:  24 of 220

The way to look at is this. Your mortgage carries an interest rate of let's say 8%. If you put that $83 dollars toward you mortgage, essentially what you'd be doing is getting a return of 8% on your $83. Or you might choose to put that $83 in the market. You're probably going to make more than 8%. Possibly more like 10% to 15%.

Okay, I can live with that...but you must then subtract the 8% interest you are still paying on the mortgage (If you are getting 10-15% in one hand, but paying 8% out of the the other hand)...brings your gain down to 2%-7% LESS than if you were to just pay off your mortgage. Besides, there are plenty of other places to cut $83. I think the BEST investment is peace of mind. There is no better peace than living debt free!!

First off, I am one of those people who is paying down their mortgage as fast as reasonably possible. For me, I just hate debt of any kind. But there is more to consider than the 8% (or these days more like 7%) mortgage vs. your investment return.

If you take the tax deduction into account for your mortgage, your real interest rate is less than 7%. Depending on your tax bracket and your state taxes, let's say you are paying about 30% in taxes. If so then that mortgage interest deduction is like a 30% reduction in interest, so your actual interest rate is
7% * 70% = 4.9%

At this rate, it may make more sense to put your extra payments into a money market account than to pay down your mortgage. I still hate debt however, so I will continue to pay down my mortgage ahead of time.

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