Prepayment may prove to be wise emotionally

September 30, 1990|By Julie Kaufmann | Julie Kaufmann,Knight-Ridder News Service

John McGinniss is a real estate investor who understands the power of using other people's money to make money.

When he buys a house he plans to use as a rental, he puts as little of his own money down as possible. But when it came to the house he shares with his family in Woodbridge, N.J., "I paid it off in five years."

Why would someone who knows the rules of the real estate game forgo a tax deduction and a chance to let inflation help pay the mortgage in order to own his home outright?

"It's one less thing to worry about," says Mr. McGinniss, 30, who wrote a pamphlet called "How to Save Thousands in Interest on Your Home Mortgage." He observed that, "Nobody can take my house away from me now."

Mr. McGinniss isn't alone.

Judy Barber, a San Francisco psychotherapist specializing in the psychology of money, says she often sees clients who want to be "really secure. And you can't be that secure.

"I've even seen it in very wealthy people . . . [who] would never be broke or in the position of losing their home," Ms. Barber says.

Larry Biehl, co-founder and director of the San Mateo, Calif., investment advisory firm Bailard, Biehl & Kaiser Inc., says he also has clients "who'd always envisioned the day they'd have a mortgage-burning party. That's why they bought the house with the fireplace."

While he rarely recommends prepaying a mortgage, Mr. Biehl recognizes that for some people, it's a sound move. "Financially, you may not be making the best decision, but emotionally you are."

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