Star Wars nerds may realize that the title of this piece swipes a line from Yoda in the Empire Strikes Back (I think). In this case it came to mind in response to an e-mail question from one of our listeners on the Creating Wealth podcast. Mike wanted to know Jason’s opinion on which was the best way to approach paying off his mortgage sooner:
1. send 2 payments a month
2. send 4 payments a month
3. send a few hundred dollars extra a month
4. send an extra payment at the end of the year
Regular listeners to the show are probably cringing right now. They already know the answer. Mike’s first mistake was in assuming that paying off a mortgage sooner is a good thing. Actually, it’s not.
Here’s what Jason had to say about it:
“My answer to that question is Mike, why the heck would you want to pay your loans off early? Your loans are assets. As long as they’re long-term, fixed-rate loans, at good, low interest rates, don’t pay them off. It is not a good deal. In our philosophy, at least, it’s not because we believe in the next few years, we will have significant inflation. And if you have long-term, fixed-rate financing, you do not want to pay debt off because you get to pay that debt back in cheaper dollars. So paying off a 30-year loan in 18 years or 20 years is no deal, my friend. In 18 or 20 years, you’ll probably be thanking me for the fact that you still have a mortgage because it will seem like virtually nothing.”
Most of us grew up being bludgeoned with the idea that the sooner you pay off your mortgage, the better. Now we know it ain’t necessarily so. That’s why we say, “Unlearn what you have learned.”
