Big-ticket items have been relegated to the back burner for now. The reduce-your-debt environment continues — just ask the major home-improvement contractors who have taken on more and more jobs.

Consumers clearly are pulling in the financial reins. One of the reasons Congress has passed a stimulus package is to get Americans to loosen their grip, spend more cash and begin to turn the economy around.

I’ve always been a pay-it-off kind of guy when it comes to home loans. I believe there are huge benefits — financial and philosophical — to owning the roof over your head. When that roof now covers your office, as it does for millions of small-business owners across the country, isn’t there an extra incentive to make a bigger dent in the domestic debt load as we get older?

Now, with the residential real estate market in slow motion, consumers are looking at all sorts of ways to reduce their debt, save interest dollars and pave a faster path to real equity.

But should the same philosophy hold true for the family cabin? Should you pay it off or diversify?

According to Jack Guttentag, professor of finance emeritus at the Wharton School of the University of Pennsylvania, consumers should view the yield of principal prepayments on their mortgage as equal to the interest rate on their loan — as long as there is no prepayment penalty included in the loan. Hence, if you are paying 6 percent on your loan, prepaying your mortgage would make more sense than plunking any extra cash into a savings account paying 2-3 percent interest.

Guttentag also states that if the yield on mortgage repayment is being compared to the yield on other taxable investments, it doesn’t matter whether yield is measured before tax or after tax (tax-exempt bonds could be an exception.)

To get even more valuable advice from Tom, visit his Second Home Center.


***


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