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)
Quote of the Day
Money is a singular thing. It ranks with love as man’s greatest source of joy. And with death as his greatest source of anxiety. Over all history it has oppressed nearly all people in one of two ways: either it has been abundant and very unreliable, or reliable and very scarce.~John Kenneth Galbraith, The Age of Uncertainty
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