At a time when some people in the Southland are struggling just to pay their mortgages, the idea of actually paying one off might sound like a pipe dream.
It doesn't have to be, said Allen Fishbein, director of housing and credit policy at the Washington, D.C.-based advocacy group Consumer Federation of America, who believes the best way to build home equity and wealth is paying down -- and eventually paying off -- the mortgage.
Recently the focus had shifted to building wealth through appreciation, Fishbein said, "but values go up and down, making this a less reliable method than paying down debt."
This can be achieved in several ways, including making one extra mortgage payment each year, putting spare amounts of cash toward the principal or using a sudden windfall, such as a tax refund, to pay off a chunk of the debt.
According to 2006 U.S. Census Bureau figures, the most recent data available, a little fewer than one-third of homeowners has no mortgage.
But is that a wise position to be in? The answer may depend on how you crunch the numbers as well as on generational and cultural differences.
Although some homeowners aim to be mortgage-free by the time they hit retirement, others question that strategy. Why bother paying off a mortgage, they ask, when that money can be invested more profitably elsewhere -- or spent?
They see little downside to carrying a mortgage and tout the benefit of a hefty tax write-off for the interest paid on home loans. They also have no qualms about tapping home equity -- not necessarily to buy BMWs or for trips to Europe but perhaps to pay college fees or fund improvements that will add value to the home.
Tom Davidoff, an assistant professor in the Haas School of Business at UC Berkeley, sees a generational divide in these positions, contrasting those for whom the recent years of affluence are all they've known with the experience of those who themselves, or whose parents, lived through some major economic hardships.
"This generation hasn't seen the economy really stink," he said. "The fear of debt isn't there."
People who are mortgage-free are "very concentrated among the elderly," Davidoff said, citing the latest University of Michigan health and retirement study showing the level of mortgage debt among retirees is, on average, only about 11% of their home values.
That's something he doubts will be repeated by many of today's younger homeowners to whom "it seems crazy to die with $800,000 untapped."
