The mortgage, what a drag.  The banks and bankers always make money don’t they?  You may see your mortgage statement every month and think wow, look at all this money that I could be investing/saving.  At least that’s what I tend to think.  For quite a while, this mortgage thing really had me sort of depressed, especially when I see how little the principle is reduced month to month.  It’s easy to feel like you may owe on this thing long after your dead and buried.  Well cheer up, chances are good we’ve been looking at this thing all wrong.

(Enter the Matrix) What if I told you a mortgage might actually be a good thing?  It may very well be.  I became really depressed about my mortgage until I read the book “Missed Fortune.”  In this book, Douglas Andrew talks about exploiting interest rates.  He makes the comparison between us and banks (remember when I said banks always make money?).  His main points, as I understand them, are these.  1) everyone needs a place to live, with a mortgage at least we are gaining equity.  2) Interest rates as of this writing are pretty low if your credit rating is good.  3) Most of us worry about the bank making money off of us, that’s what interest is, however we fail to look at this in a critical way.  Your home is not a very liquid asset.  In a down market it could take months or longer to sell your home.  The money you have tied up in your home don’t have access to in time of an emergency unless you own your home outright.  So it makes more sense to either A) own your home outright in which case you don’t need a mortgage or B) keep as little money in your house as possible aka the mortgage.

But I know you are saying, now we are back to the interest problem.  Yes, I agree.  However, instead of making double payments on your mortgage why not use what Andrew calls interest rate arbitrage.  If the bank will loan me money at 3.75% and I can invest at 4.25% then I need to be investing rather than paying off my mortgage early.  But that’s additional risk I hear you saying.  Correct.  However, I recently bought up a Dividend Aristocrat stock yielding north of 4% and will likely to continue to increase my payout in the future.  Now I am making more money and utilizing compound interest as well.  Plus, I now own a new income stream hopefully for life.

But the bank is still making money off of me.  Yes, correct again.  Let’s bring in an unlikely friend, dear ole Uncle Sam.  Mortgage interest can be deducted from your taxable income.  Write off your mortgage interest against your taxes and enjoy a larger return, if you are eligible for one.  You can also view this as the government helping to make your mortgage payment.  I plan on using my tax return this year to pay off additional principle against my mortgage.  Thanks Uncle Sam, words I thought I would never hear myself saying.  It’s not the same as not paying taxes and it’s not the same as not paying interest, but it’s a start.  Satisfied yet?

No!  The bank is still making money off of me!  Fine.  Make your mortgage part of your emergency fund.  What?  It seems a little ridiculous but here is what I do.  My mortgage lender allows me to pay my mortgage early by about three months.  Currently, I am ahead on my mortgage payment by about three months.  Lose your job unexpectedly?  You have a three month cushion.  Run into an unexpected one time expense, don’t worry about that mortgage payment this month, you’re ahead three months.  Still not satisfied?

Use your mortgage to diversify your investment strategy.  Paying additional principle payments on your mortgage is a guaranteed return on your money.  I personally make an additional six extra payments a year on my mortgage while investing the other funds that I was paying in rent at my former apartment into dividend paying stocks.  In this way I am making a guaranteed rate of return while also using interest rate arbitrage and harnessing the power of compound interest.  To me, that’s major diversity on an expense you already have.

But the bank is still making money off of me!  I can’t argue, you’re still right.  So, pass that cost on to someone else.  In the area I live, I could rent one of the empty rooms in my house out and damn near cover my entire mortgage payment.  Pass this cost on or at least subsidize some of the cost.  Don’t want a roommate?  Quit bitching so much 🙂

While the mortgage is still a drag, and I look forward to the day of putting all of that money into the market or rental property, I think these are the best ways, or at least the best ways I know of how to make your mortgage less of a drag.  Good luck!   Feel free to share any additional strategies you’ve employed to paying off or harnessing the power of your mortgage.