D.I.N.K.

Writes Terry: “I read your comments regards to paying off mortgages and wanted your opinion on my own situation. I am 44 yr old D.I.N.K., with no debt other than an 80k mortgage at 8.5% with 20 yrs left. Spouse earns about 40k (she is 30), my earnings (sales) are very inconsistant [sic] but minimum is likely to be 40-50k/yr. We live conservatively and can easily afford to add an additional $500./mth (towards principal) to our house payment of $855/mth. Our savings are modest, about 50k total.

“The question of course is, should we continue to pay down the mortgage or would it be better to put that $500/mth into savings? I hate debt and without a house payment we could live on about 12k/yr. I will appreciate your insights. Thank you and please don’t use my name or email address.”

A D.I.N.K., I should first translate for the acronym-differently-abled, is no longer the pejorative it once was on the paddle tennis courts of Camp Wigwam and has nothing to do with Donna Karan. Double Income No Kids.

I think your question answers itself, Terry. You hate debt and can easily afford to keep paying down your mortgage. So keep it up! By so doing, you get a well-deserved sense of satisfaction and you in effect earn a risk-free 8.5% — not stellar, to be sure, but not at all bad, either.

I assume you itemize your deductions, so it’s in effect a “pre-tax” 8.5% you’re earning (in that after tax, this interest is only costing you maybe 5.75%, meaning that not having to pay it is like earning only 5.75%). But still, not bad at all.

Of course, the math would tell you that if you can just find a stock growing at 10%, let alone 20% or 30%, a year, you would do better putting your $500 chunks there. True. But Polaroid was once such a growth stock — brilliant scientists nestled between two of the greatest universities in the world, a monopoly on an amazing product. You could have bought it for $144 in 1972, if memory serves, and then, two or three years later, $14. So there’s something to be said for a certain level of guaranteed saving, and this mortgage pay-down scheme of yours fits it nicely.

Tomorrow: A Load, But Low Expenses (Cheesecake Lovers: Hang On)