Paying Off Your Mortgage Early Is A Bad Idea When…
September 21, 2009 – 4:32 am…inflation is on the rise. That’s speaking in economical terms. If you have fixed payments and inflation goes through the roof then you’ll be paying your mortgage back with worthless dollars, and therefore you will be ahead.
Economics aside though, I agree with Dave Ramsey’s baby steps as far as the timing of when to start paying down the mortgage faster. I think that paying off your mortgage early should be a primary goal once a full emergency fund is in place and some money is being saved for retirement. I don’t think that saving 15% is accurate for everyone, because a 20 year old saving 15% for retirement is more likely to meet with success than a 60 year old.
Inflation is likely to rise up in the near future though, and the government continues to expand the money supply. The only real question is when? For now the lack of consumer demand and available credit has more than offset the potential rise in inflation. If people continue to lose jobs and scale back we could see deflation for a while before it reverses to inflation.
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2 Responses to “Paying Off Your Mortgage Early Is A Bad Idea When…”
I hear and read this argument often. It is not universally true. Paying off a mortgage with devalued dollars caused by extended periods of inflation is a benefit only if your income at least keeps pace with inflation. On the other hand, if your mortgage payment remains a fixed percentage of your spendable income even with inflation, what does it matter that those dollars have been devalued by inflation? The relative cost to you and your spending power is the same.
By MJP on Sep 25, 2009
“If people continue to lose jobs and scale back we could see deflation for a while before it reverses to inflation.” What if you are 55 and listened to this advice? Don’t pay your mortgage early? You could be facing losing your home right now. You did things right, you kept your 4-6 months of salary in savings, but you have been out of work for 12 months. And you have 12 years to go on your mortgage. But you can no longer keep paying it. What are you going to do? Where are you going to live?
I pay an extra $100/mo on my mortgage. Always have. Now I also have gotten up to saving $100/pay check and increased my 401k to 15%. Lastly, I am now paying 5% to my son’s college education. I do not take home that much more than I did 10 years ago. Why? Because I don’t need it to live comfortably. I save more so I don’t have to worry later. Car breaks down? Got it covered. Son goes to college? Got most of it covered. Furnace goes out, got it covered. I lose my job at 50? I may not be covered 100%, but I do know that I won’t lose my house because I have been “Paying Off my Mortgage early”.
By The Realist on Jan 31, 2010