Don't Make Your Mortgage Banker Rich

By: Marv Eisen

As a new homeowner, you're to be congratulated. You're venturing to living the American Dream. Like most people, you want a good job, to own your own home, and have a fat retirement account that will provide you and your family a secure future. Perhaps you read Dave Ramsey and believe in his guidance. Well, if you're just starting off and you've purchased a home, you most likely also have a good job. At this point, you want to begin saving for retirement.

There's plenty of investment advice for you to follow. In addition to Dave Ramsey, there's lots of info about how to invest your money and with which brokerage firm. Wherever you look, on TV, the internet, and in print, the talk is about money and investing. What's your preference: equities, municipal bonds, cd's? How about futures; you know, pork bellies, gold, frozen concentrated orange juice? Perhaps you've seen commercials that push "the excitement of Forex trading", where you are invited to trade in foreign currencies. Besides investment firms, even banks offer investment accounts. Many banks that sell mortgages also offer investment accounts. Perhaps the bank where you got your mortgage is one of them. Remember, this article concerns saving for the future - as in retirement.

Certainly, a big attraction of retirement accounts is that most are tax-deferred. In other words, you pay no tax on the funds you contribute to the account, and no tax on the profits. You only pay tax when you withdraw funds. To many, this seems like a great deal because they won't be taking money from the account until they retire, and at that time they'll be in a lower tax bracket. It all sounds fantastic, and squares with most people's idea of the American Dream.

There's no surprise that you've bought into this judgment. The hitch is, it's all wrong! Despite all the recommedations telling you to invest for the future, it can be a very big mistake. Furthermore, following this course may curtail your retirement - perhaps forever. Followers of Dave Ramsey know that his advice is to reduce your debts.

You probably realize first and foremost that sellers of investment "products" are doing so for their interest, not yours. Secondly, they are trying to convince you that it's in your best interest to save for the future as early as possible. What they don't tell you is that if you're a homeowner with a high mortgage, you're mortgage interest cost will be much higher than any earnings that will accrue from a retirement account. For example, a homeowner with a 6%, $250,000 mortgage will pay $15,000 in interest the first year alone. What will your IRA earn? If you contribute $2,000, and your account earns 8% (a high number by today's standards) your first year earnings will be a whopping $120.

But what if you listen to what Dave Ramsey and others advise. That money is used to accelerate your mortgage instead. In 4 years, your IRA will have earned $1,730. But if you pay the tax on the $2,000 each year and use those funds (about $1,600) to pay off your mortgage, your mortgage balance will be reduced by $6,400. It's In fact it's more, because reducing the principal each year will cause more of your monthly check to reduce it further.

Bottom line: after only four years, the difference in balance will save you $30,000 of interest payments. $30,000! Compare that to the $1,730 your IRA will earn. It's not even close. And because interest saved = interest earned, you will have earned $30,000 tax free! You'll also have cut the time to pay off your mortgage by years. It's not surprising that Dave Ramsey has so many followers. Mortgage acceleration earns more for homeowners than any investment, especially in the homeowners early years of the mortgage. Learn more about mortgage acceleration and debt reduction at

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