"I wonder what Rick's problem is? If a person pays only the required monthly payment on a 30 year mortgage, at the end of that 30 years, he will have paid at least double the selling price."
That's the time value of money. Take the difference in the payment and invest it each month. You will come out ahead, and have the option to pay off the mortgage with the nest egg when the house would have been paid off with the accelerated payments. When interest rates rise, your investment return can increase, while your payment stays low. Also, you should avoid holding too much equity in your home, for asset protection purposes.
Here's Ric's explanation:
http://www.ricedelman.com/planning/home/rule21.asp Thanks Beelzebubba. I was actually going to spend time typing out his arguments. lol
Every time you send an extra $100 to your mortgage company, you deny yourself the opportunity to invest that $100 elsewhere.What he is advising is that we all become investment bankers, spending 40 hours per week investigating and making investments. And, his theory is based on an 8% return on the money invested. Not a bat theory if that's what you want to do. How many of us have the time or the wherewithall to do this?
Here's Ric's explanation:
http://www.ricedelman.com/planning/home/rule21.asp Thanks for posting the link. It's an excellent article that everyone, who is considering paying off their mortgage early should read. (and for those who read it, don't forget to read the second page too).
One of the reasons that people want to prepay the mortgage is to reduce risk, when in fact if all their money is stuck in the house, in tough times they won't be able to get it back out, whereas, if they saved the extra money, instead of putting it into the house, that can tide them over tough time, or provide money for retirement. You can't eat the bricks, many older people have their house paid off, and don't have enough money to live on, and the only way they could get the money is by selling the house. On the other hand, if they had saved that money and invested it over the years, they would have enough to live on and make the payments.
This is especially true, when interest rates are as low as they are today.
It really is the question, whether you want the same money to be inaccessible in the house, or accessible, liquid. The money you earn on the extra money covers the payments.