Paying Off the Mortgage Early? Not So Fast …

In January 2009 I wrote one of my most popular posts to-date entitled Paying Off Your Mortgage Early Is A No-Brainer. In that post I did a detailed analysis that justified why paying down my mortgage was the right thing to do.

That Was Then, This Is Now

Of course, that was before all of the banking and homeowner bailouts approved by Congress, and before President Obama decided to go on a spending spree that makes George W. Bush look like a miserly tight wad.

Never mind that the bailouts are detrimental to our monetary system. The president’s most recent budget includes an unprecedented funding shortfall of almost three trillion dollars over the next two years, an amount equal to a staggering 12% of the entire US gross domestic product and twice the size of the worst deficits on record. The government printing presses are already on overdrive trying to cover these bailouts and the budget deficit.

Of course, there is a method to the madness. The politically safe and expedient way to dig the US out from the massive pile of debt it has accumulated is to devalue the dollar via high inflation, if not Zimbabwe-style hyperinflation and outright economic collapse.

The reckless economic policies of the US that are now in place are greatly increasing that threat. Sadly, it looks like those policies will be not be changing anytime soon.

As a result, I have therefore been forced to reconsider my earlier position regarding early mortgage payoff.

Now before you accuse me of imitating the infamous arch-villain Two-Face, let me say that I have not yet abandoned my original position. After all, I have been paying down my mortgage for over 12 years now and, as my original analysis showed, by doing so I easily beat the stock market over that same time period.

But until I get a little more clarity as to what is going to happen with respect to inflation, I am hedging my bets for awhile…

Sitting On The Fence

That’s right. Until I get more clarity on the inflation situation, I am now putting the money I would normally be applying towards extra principal payments on my mortgage into a high-interest savings account. For now, the money in that account will be considered untouchable; after all, the money is still earmarked for additional principal payments.

I’ll continue to reevaluate the threat of inflation over the coming months and, if and when I become convinced that the Fed somehow managed to pull a rabbit out of the hat with respect to containing inflation, I will take all of the money I’ve saved in that savings account and immediately apply it towards the mortgage.

On the other hand, if and when I become absolutely certain that the government is indeed content to let high inflation solve its massive debt problem, I will immediately put all of the accumulated money into some inflation-resistant vehicles like real estate or gold.

Until then, I’m sittin’ on the fence.

I’ll let you know which direction I go when I finally decide to get off.