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Mortgage Choice – economic or emotional?

Investment Zen

Is it a good idea to pay off your home mortgage loan early?

I find there is an economic answer to that question and an emotional answer to that question.


Which is right? That depends on who YOU are…

Well, I’m glad I could clear that up…

Decisions surrounding a house tend to be both economic and emotional. They are economic because most people spend more money on their house and housing related expenses than anything else in their lives. But they are also emotional for much the same reason. Few things define us and our families more than that place in which we live. It is both a house and a home.

This is a generality which could be 100% cultural, but my experience is that women tend to be more security minded. Men tend to be more win/lose in their thinking.

The women I meet tend to be more comfortable embracing the emotional side of their decision making. Men tend to be just as emotional – we just tend to not want to admit it.

So most women with whom I discuss mortgages treat them as a necessary evil. The mortgage represents a potential enemy which, if unpaid, may cause the house to be taken away from the family. Not a good emotional association.

Some men see mortgages as tools for conquest – the bigger the better. There’s some emotion for you!

Others share their wife’s distaste for having to have the debt, but want to make sure they are doing the shrewd thing – we guys don’t like appearing dumb in front of our friends (much less our wives!).

This is why women’s use of the line, “Oh, honey, you’re so smart!” is so insidious. It temporarily stuns the male, as he must mentally search for evidence to justify the statement, hoping it might actually be true. This leaves the male at a temporary disadvantage, allowing the female to assert her dominance without the male’s awareness. But I digress…

Done correctly, both of you can get what you want.

You want to make a smart mortgage choice. She just wants to be rid of the thing ASAP.

Consider a get-out-of-debt quickly strategy using a long-term mortgage.

If you borrowed $500,000 at 5% (current rates may be lower) over 15 years, the monthly mortgage payment would be about $4000. Stretch that loan repayment time out to 30 years, and the payments go down to about $2700 per month. That’s $1,300 per month difference.

If you want to get out of debt quickly, you might think opting for the 15 year mortgage is the way to go. I’d say it is simply a way to go.

Another possibility is to opt for the 30 year mortgage, but commit the difference in payments ($1300) to a savings or investment account. As long as you earn the same as the after tax cost of your mortgage rate, you should have enough in your side account to pay off your mortgage at year 15, if you wish.

Perhaps more significantly, you’ll have a growing pile of liquid wealth (the side account) that is available to use in the event of an emergency or an opportunity. This is actually when the side fund may prove most valuable.

If you decide this strategy is worth considering, bring it up with your wife. Tell her it's a way to make you both happy. When you do, who knows? She might just break out with, "Oh honey, you're so smart!"

Don't say I didn't warn you

Byron is a Certified Financial Planner and Managing Director of the Planning Group at Argent Advisors, Inc.
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