Guys-
I was about to meet with someone who sells/markets a software that helps you payoff mortgages early, the conventional wisdom most people subscribe to.
But I’m not one to just jump into good ol’ conventional wisdom! So I did a little Googling, and found the following excerpt about early mortgage payoff:
The formula is to multiply your mortgage rate by 1 minus your tax rate. Compare that return to what you think you can get in the least-risky 401(k) choice. Choose the higher one.
For example, if your mortgage rate is 6 percent and your tax rate is 25 percent, the math is 6 times 1 minus 0.25 (or 6 times 0.75). The result is 4.5 percent. That’s your real mortgage rate when you consider the mortgage tax deduction.
If government bonds are paying 5 percent, you should choose retirement investing over mortgage prepayment.
That’s a pretty simple yet useful calculation! Using that calculation I am better off not prepaying our mortgage although I do try and make one extra payment per year. What did your real mortgage rate turn out to be?
I then dug a little deeper, and 2 other sites confirmed this thinking:
http://www.realestatejournal.com/buysell/mortgages/20040630-cullen.html
Some good stuff. Pass it on.
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