Paying off Your Mortgage

Paying off your mortgage may not be the best thing to do. As you make payments on your home and your home appreciates due to market conditions, you will build home equity. The question now becomes:

Would you ever willingly tie up your money in a non-liquid investment yielding a ZERO rate of return?

For most people, this sounds crazy, but this is exactly what home equity is! Equity in your home as an investment carries no rate of return and is not liquid. The rate of return is always zero - it is the home value that appreciates, not the equity. And to tap into that equity when needed, you must either sell the property, or go through the borrowing process, usually paying fees to tap into that zero rate of return "investment" account called home equity.

The velocity of money is an interesting concept. Everything purchased is 100% financed. You either pay interest to someone else or give up the interest you could have earned. Surprising amounts of wealth can be created by using money that would be trapped in your home and putting it to work for you. The concept, known as arbitrage, employs safe insured instruments like tax-free bonds as an alternative to large down payments to help homebuyers reach their financial goals.

Tue Apr 26, 2005 9:46 pm MST by mortgage | Email Article |

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Paying off Your Mortgage