Don't Make Your Mortgage Banker Rich

New homeowners are to be congratulated for building their financial future. If you're like most people, your idea of financial security is most likely a rewarding job, a home, and a seven figure retirement account. Perhaps you read Dave Ramsey and follow his advice. If you have a mortgage, you have a decent job with long-term prospects. At this point, you are looking in to your retirement needs.

There's lots of investment opinion out there. In addition to Dave Ramsey, there's no shortage of info about investing your money and with which brokerage firm. Wherever you look, on TV, the internet, and in print, pundits talk about money and how to make it grow. What's your preference: equities, municipal bonds, cd's? How about futures; you know, pork bellies, gold, frozen concentrated orange juice? You may even have seen ads that push "the excitement of Forex trading", where you are invited to trade in foreign currencies. Brokerage firms are not the only places to invest your money. Banks offering mortgage loans also have investment accounts. Perhaps the bank where you got your mortgage is among them. Remember, we're talking about saving for the long term - for retirement.

Certainly, a big attraction of retirement accounts is that most are tax-deferred. So, there's no tax due on the funds you deposit into the account, and also no tax on the profits. The only time tax is paid is when you withdraw funds. This sounds like a great deal to most people because they won't be taking money from the account until retirement, and at that time they'll be in a lower tax bracket. It all is appealing, and squares with most people's view of the American Dream.

There's no surprise that you've bought into this judgment. The trouble is, it's all wrong! In spite of the ads telling you to invest for the future, it can be a very big mistake. Moreover, following this course may curtail your retirement - perhaps forever. If you follow Dave Ramsey, you know that his advice is to reduce your debts.

First, those who sell investment "products" do so for their interest, not yours. Secondly, they are trying to assure you that you should save for the future and to start early. They don't disclose that for homeowners with a high mortgage, you're mortgage will cost you far more in interest than the meager earnings of a retirement account. For example, it will cost a homeowner having a $250K, 6% mortgage $15,000 in interest in the very first year. Let's compare that to your IRA. Well, if you contribute $2,000, and your account earns 8% (the historical earnings of stocks) your first year earnings will be a whopping $120.

But what if you decide not to listen to the pundits who tell you to invest, and listen to what Dave Ramsey and others advise. You use that money to pay down your mortgage instead. After 4 years, your IRA will earn $1,730. But assume you pay the tax on the $2,000 each year and use those funds (about $1,600) to pay off your mortgage, your mortgage balance will be reduced by $6,400. It's really more, because reducing the principal each year will cause more of your monthly check to reduce it further.

Bottom line: after only four years, the accerated reduced principal will save you $30,000 of additional payments. $30,000! Compare that to the $1,730 your IRA will earn. The results aren't even close. And because interest saved = interest earned, you will have earned yourself $30,000 tax free! You'll also have cut the time to pay off your mortgage by years. No wonder that Dave Ramsey has so many people following his advice. Mortgage acceleration is the better choice for homeowners than any investment, especially in the early years of the mortgage. Learn more about mortgage acceleration and debt reduction at http://iounomore.wordpress.com.

Your mortgage is costing more than you think