Question: “Using” the passive money is another misconception. Besides investing >in IPOs, which is literally gambling considering the volatility >involved, I cannot see how any safe investment (6% or so on money >market) will accrue a savings more than the interest savings one can >expect, and be guaranteed, from cutting their mortgage time period in >half. Plus, the monies used for these investments are subject to >capital gains tax. Bottom line: Paying off consumer debt, whether it is in the form of a >credit card, auto loan, or even a mortgage, is the ONLY guaranteed, tax >free fixed-rate investment one can ever make.
Answer: Agreed it is higher risk than paying it off, but there are other advantages. Quick liquidity is one, flexability is another. My neighbor has a mortgage at 6.25% (lucky dog). If you can’t beat 6.25% with all the tax implecation taken into account, you have the wrong fund manager or you need a fund manager.
Paying it off is basicly low-risk low-return. I disagree… I would say, pay off high interest debt first, and if you can invest the money at a higher return than the debt load, do so. For instance, why pay off a 2.9% car loan (I know, I know, but its a simple example) or pay off a 4.9% credit card? Thats almost free money! Even a 6.25% home loan is cheap if the money is invested correctly. Don’t get me wrong, I’m not advocating accrueing debt beyond your ability to pay for it. I’m saying maximize the return on your money.
Unfortunatly, there is no simple rule.
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