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Don’t Be Deceived by Mortgage Illusion #2, Don’t Pay Off Mortgage, Earn More With Investments

When you think of an illusion, you may think of watching a magician perform some sleight-of-hand trick, such as pulling a rabbit out of a hat when it appeared there was no rabbit just moments ago.

This is an illusion, the appearance of a reality that isn’t really true.

Thesaurus.com gives other synonyms for the word “illusion,” such as “confusion,” “deception,” “delusion,” “fallacy,” “misconception,” and “myth.”

The opposite meaning, the antonym, is “reality.”

Many ideas are stated over and over so often that people will soon accept them as truth, even if they are truly illusions like pulling a rabbit out of a seemingly empty hat.

Don’t let yourself fall prey to these illusions, because it could be at your financial peril.

Here is the second of three mortgage illusions.

Knowing the truth and acting accordingly will help your loan payment freedom plan and your ultimate financial freedom.

Here is Mortgage Illusion #1: You Own Your Home

Mortgage Illusion #2: Don’t Pay Off Your Mortgage, You Can Earn More in the Stock Market

Remember “risk” as the key word. When someone tells you that you can earn more in the stock market instead of paying off your mortgage, they are comparing two options with different levels of risk.

Paying off your mortgage is a guaranteed investment. In other words, you know how much interest you can save (earn) by paying it off early. The interest you will pay is already pre-determined.

Saving interest you would have to pay is like earning interest elsewhere.

On the other hand, although it might be possible to earn more in the stock market, that return is not guaranteed. All you have to do is look at stock market investments in early 2000 or in 2008 and compare that value to what they were worth two years later to see the truth.

Where would you have earned a higher return on the same money in those years, in the stock market or paying off your mortgage?

In the stock market, many people experienced a negative return on their investment—in other words, they lost some of their money!

If instead, you had invested that money in paying off your mortgage you would still have made money (by saving the interest you would otherwise have had to pay).

For this illusion to be real, you must compare paying off your mortgage with a “guaranteed” investment.

This would be the equivalent of traditional savings accounts or certificates of deposit—both are insured against loss.

As of this writing, the national average interest rate for savings accounts is .06% APY (that’s less than one-tenth of one percent, which is less than one-percent!) on savings accounts. The typical rate on certificates of deposit for a five-year commitment is around 1.5%.

A true “apples-to-apples” comparison means that you must compare those rates to your mortgage rate.

Even if you consider that a long-term return on mutual funds over thirty years could be as much as 10% or more, you should still pay off your mortgage.

When you pay off your mortgage in as little as 6-10 years according to my Loan Payment Freedom Secrets plan and then invest in mutual funds, stocks, etc., you get the best of both options: a guaranteed, safe, return on your investment by paying off your mortgage and the benefit of long-term investment growth.

Therefore, keeping your mortgage to invest that money instead in the stock market means that you will have more risk—you might make more money, but you could actually lose money.

Furthermore, you can actually become wealthier by paying off your mortgage first and then investing in the stock market rather than trying to do both at the same time.

Go one step further.

Suppose you should lose your job. If you had invested in the stock market instead of paying off your mortgage, will that investment provide an income to support you? Probably not.

However, if you had paid off your mortgage, now you don’t have to make mortgage payments. This means you can live on less money and you have a much better chance of surviving financially.

This is about lower risk and greater peace of mind. If you want to invest in the stock market, you might earn more money but you might lose money.

If you use the same money to pay off your mortgage, you receive a guaranteed return on your money and you can go on with your life without worrying. And you get the added benefit of the safety and security of knowing that your home is completely paid for. No lender can threaten to take it away from you.

Don’t believe this illusion. Instead, pay off your mortgage.

Go here for Mortgage Illusion #3: Don’t Pay Off Your Mortgage, It’s the Last Tax Break You Have Left

Don’t be deceived.

These three mortgage illusions are so commonly believed that people fall for them and blindly follow along, whether it is really good for them or not.

Don’t be one of those people who are deceived.

Contact us instead.

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