Pay off mortgage and invest money instead? It all depends

Flexibility is nice, but return is a gamble

Dollars & Sense

September 23, 2001|By Liz Pulliam Weston | Liz Pulliam Weston,SPECIAL TO THE SUN

My wife is 30 and I am 34. We have decent jobs, and our combined income is about $125,000 a year. We have been living well below our means, and have enough money to completely pay off our mortgage. Many advisers have told us not to do it for one reason or another. Most have said that as our mortgage rate is only 6 percent, we should invest the money instead. But my wife and I feel that with jobs being lost every day, it would be smart to just bite the bullet and pay off the mortgage. As a bonus, we'll save on the interest we otherwise would have paid. Keep in mind that we are not paying extra every month. We will be paying with cash that we have saved for the last 2 1/2 years through blood, sweat and tears. I hope that your answer is a refreshing change from most that we have heard lately.

Does the answer "it depends" count as a refreshing change?

On the one hand, with jobs being lost every day, most people would want to increase their financial flexibility - not decrease it by tying up more money in one asset (a home).

On the other hand, with the stock market in tatters and returns on fixed-income investments so low, the return from paying off your mortgage early starts looking a little better.

Of course, you're still working with very cheap money. The after-tax cost of your mortgage is probably 4 percent or less. Over time, you're likely to do much better investing your money in stocks than you are in paying off your mortgage.

But you might not be willing to take that gamble. If you're already saving sufficiently for retirement, you're certainly free to start adding a little extra to your monthly mortgage payments to pay the loan off more quickly .

Last year I received a series of telephone calls from a bank telling me that my payment was late, and they were going to take legal action if I did not clear up my account. I told them I was not one of their clients, and owed them no money. It turns out they had sent unsolicited Visa checks to me at an address where I no longer lived, and someone else had used them, signing my name.

After protracted communications, they agreed that I was a victim of identity theft, and zeroed out my account. Recently, when applying for a loan, I was told that this bank was still reporting an account that was 90 days overdue. I have written to the bank twice, asking them to correct that item, and have received no response. ... Please advise the best way for me to have that item erased.

Contact the credit bureau that supplied your credit report and ask for an investigation of the erroneous item. Your credit report should contain information on how to contact the bureau to ask for such an investigation. Send a letter detailing the incorrect item and explaining why it's wrong.

The credit bureau is required to investigate the matter and report back to you within 30 days.

Liz Pulliam Weston is a columnist for the Los Angeles Times, a Tribune Publishing newspaper.

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