Loans Answers

prefer saving

Question: The equity in a house is readily or should be available for emergencies.

Answer: So you prefer saving (gradually losing) 6 months pay in a savings account or CD that is essentially guaranteed to lose value (particularly after taxes and inflation) rather than build up an emergency fund by paying down 6%+ debt in home equity that you can get on a moments notice for emergency purposes? Hmm- sounds like a good way to throw away a good 5% of your money. I agree that borrowing against home equity for short term expenditures should be a last resort, but saving large sums of money at 1-2 % vs. reducing 6%+ interest on debt does sound like an odd approach. I guess it’s a “new math” approach” Or are you a banker looking for low-cost deposits?

I guess the question becomes from where do you get that emergency money? From a low-return savings accounts or short-term CDs? Borrowed from credit cards? From long-term CDs where you lose interest/get penalized by tapping early? 401k’s where you lose out on the tax free accumulations? Your money market approach makes more sense, but it still has risk with typically less return vs. paying down mortgage debt (especially if you are not itemizing).

Now if you can get an after-tax return greater than your mortgage rate, by all means go for it (or borrow to fund that investment). Unfortunately that rarely happens without great risk.

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