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Investment offers high return, no risk


Psst! Want a high-return, no-risk investment?

It's easy. Simply pay off your mortgage faster than you have to.

That's what Juliette and David Heim of Lake Placid, N.Y., plan to do. By paying an extra $69 a month, they'll cut 129 payments and $62,400 in interest off their mortgage.

When you pay extra principal each month you're effectively investing the cash at the same rate as you're being charged on the mortgage.

On a 10 percent mortgage loan, that's like earning 10 percent on your money.

True, the mortgage interest you're not paying would have been deductible, but you also would have had to pay tax on earnings outside the mortgage.

So the taxes are a wash.

Refinancers are especially good candidates for prepaying because refinancing delays debt-freedom day. Refinancing a four-year-old, 30-year note with a new 30-year mortgage pushes the final payment four years further into the future.

You can change that dramatically by investing what you save each month in the new mortgage.

If you had a $100,000 mortgage at 10.5 percent and refinanced it at 8 percent, you could pay off the new loan in nearly half the time by plowing the $181 monthly savings into principal prepayment.

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