When you look at these numbers, it doesn't seem to really matter, does it? After all it is only a difference of a couple of dollars. Yet, look closer and you will see that in the first scenario you are losing $2 while in the second scenario you are gaining $2. OK, still small potatoes, but now it is $4 (a fancy cup of coffee at Starbuck's).
Think it is still no big deal?
OK, let's multiply that by 1,000. Still think it is small potatoes?
Now, let's compound the problem over 30 years. The difference clearly gets magnified over time. And the problem is most Americans do not understand the time value of money.
The problem most Americans don't realize is the fact that focusing on paying off their mortgage can cost them hundreds of thousands of dollars over time. While ever dollar sent to your bank saves on interest, you also lose tax benefits as well, thus your $6 saved really is only about $4.
Now couple that with the fact that you could be investing that money instead, earning compound interest and gaining large amounts of money over time on the "spread". So, the $4 it ultimately costs you earns $6 (or even more) and you gained $2 on that spread. Again, multiply that by 1,000 and now you have an earning spread of $2,000.
Notice I said spread of $2,000. That is because you really have $6,000 earned on the investment side, but it did cost you $4,000 to get it. It may not seem to be worth it right now, but let's look at another fact.
The interest earned on investments will get compounded, but the interest on a mortgage is flat. So, every year your investment earnings will gain a larger spread while the annual cost will always be $4,000 if you have an interest only loan.
Even with the fancy mortgage acceleration programs out there, you can achieve greater wealth over time by not focusing on paying off your mortgage.
I know there is peace of mind in paying off all of your debts, so a mortgage acceleration program may be best for you. But before you go into one, be sure you understand all of your options and read my Money Merge Account: Beyond the Software series where I intend to show clearly how each option works and can be beneficial.
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Robert.... well done... we seem to agree that these other things can work for you, but they aren't the best options. I think this is half the battle. Because your scenarios aren't as easy to understand, compared to a program that does it for you. And that's the part that ticks me off.... people will go the easier route, even if it's not as good... and that they can get caught up on the whole theory of paying down your mortgage as soon as possible.
As you stated, it mostly comes down to peace of mind. What about those that paid for their taxes and homeowners on their own, if they had less than 80% LTV.... many of us would say, that's stupid... just to save a few pennies..... but that's exactly what this is... taking those pennies and building on it. It takes work, but it's the most profitable way.