It turns out the post I made last September titled “9 Year Mortgage – Some Thoughts” has gotten a lot of attention.* I’d like to write about a larger point that I didn’t make in that post, which really needs to be discussed: paying off debt using “systems” or “methods.”
Every year or two, I bump into a new system or method that uses some clever mathematical or legal ruse to shave time off a mortgage. Usually they’re variants of three types of strategies:
- Give money to the mortgagor until the debt is paid off.
- Do a bizarre investment tap-dance that somehow (maybe) increases the amount of money that is given to the mortgagor until the debt is paid off.
- Scam the mortgagor with pseudo-legal shenanigans so the debt won’t have to be paid off. We’re not going to discuss this here.**
Do you notice the key themes in the first two options? You pay the debt off. That’s the “secret” behind paying your mortgage off early. You give the mortgagor heaps of money until your obligation is fulfilled.
Arguments could be made about the investment gymnastics you would need to make money from a suitably low risk investment and hoop you’d have to jump through to get the tax costs properly figured. But, if your goal is to pay down your mortgage, why not just pay down your mortgage? Remember, for every financial product you use, there are costs. I doubt that the costs of using additional financial products (at a low level of risk) would make up for the extra costs of using the products. The only product I can think of that might make sense as an investment to help pay off a mortgage (cost-wise) would be a diversified portfolio of debt and equity investments, but this would still be pretty risky compared just paying down a mortgage.
And let’s be frank: paying off a mortgage by giving the mortgagor sufficient money to pay off the principal works every time. The investment/financial product/HELOC/mortgage systems, well, generally don’t.
* For this blog. It’s pretty slow around here.
** Seriously, if pseudo-legal shenanigans appeals to you, please leave. We don’t do that around here, and there are plenty of morally stunted people elsewhere on the internet who will “help” you.