More Great Financial Advice From the Media “Don’t Rush To Pay Off Your Mortgage”

One of the reasons I like to read the financial articles on the Yahoo Finance website is because they are often completely ludicrous, and it is like watching a train wreck. (This is my own personal opinion, I am sure there are plenty of people out there that just love these articles.) You think you might get some great financial advice. Instead, you end up just shaking your head…

The article in question is titled “Don’t Rush To Pay Off Your Mortgage”, and was actually written for the US News and World and Report website.

Now, I know that many people choose to invest their spare money instead of paying down their mortgage, and I have no issue with that. However, the reasons stated in this article to choose investing are laughable.

The author of the article, Adam Bold, fielded a question from a caller on his radio show about paying off a mortgage. The caller was wondering if he should cash in $50,000 of the $100,000 he has invested in a mutual fund to pay off his mortgage. Bold went through some mathematical discussion of how he could deduct the mortgage interest from taxes and such so that he was effectively only paying a 3.6 percent interest rate on the mortgage. I have no idea how Bold came up with half his numbers because without seeing an amortization table, we have no way of knowing how much the caller is actually paying in interest. (If he is at the beginning of his loan, he is paying a heck of a lot more in interest than if he is at the end of his loan. Based on the information given in the article, I don’t know how Bold can even come up with the numbers required to make an educated decision.)

Bold further justifies keeping the mortgage by stating that the caller should be able to count on a gain of 10 percent per year because that is the long term rate of return of the stock market. Where has this man been the last couple decades???? To me, it is financially irresponsible to tell people to make decisions based on such a ridiculously high rate of return. If my retirement portfolio had gained 10 percent annually since I started investing, we would be a heck of a lot better off than we are now. Sure, ten percent may be accurate if you go all the way back to 1926. However, usually people invest for a shorter time horizon than 85 years.

My favorite quote in the whole article is this:

“Many people believe they’ll attain peace of mind when they pay off their mortgage. They might share the Depression-era belief that the government can’t take their house away if they pay off their loan. I believe strongly that any peace of mind is outweighed by the potential benefits of keeping the money and investing it. “

So, the author is implying that people think “whew, my house is paid off, now the government can’t take away my home”??? I know that my motivation to pay off my house is not because I am afraid some random ‘government’ official is going to pull me out of bed one morning and set me out on the curb. (Besides, doesn’t the government bail you out of your underwater loans now anyway??) I want to pay off my mortgage so I have more freedom to do what I want instead of being constrained by debt.

I also take issue with how Bold can determine how much peace of mind anyone would have from paying off their mortgage. What about if we get another market ‘correction’ and that $100,000 is suddenly worth $80,000? Is the benefit in that scenario still outweighing the peace of mind you have from owning your own home? I seriously doubt it.

I will say though, the article did finally make sense to me when I got to the bottom:

“Adam Bold is the founder of The Mutual Fund Store, which provides fee-only investment advice with locations coast-to-coast. He’s also host of The Mutual Fund Show, a call-in radio program broadcast across the country.”

Big surprise. So this guy manages to get an article on US News and World Report and pushes his own agenda for financial gain. This is what is so wrong with the media. People cannot turn to it for honest information. The only thing is, not everyone knows that articles like this are not necessarily written with the reader in mind. Instead, it appears to be written to benefit the author.