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I have seen lots of discussion here about the pros and cons of pre-paying a mortgage. For the past several years I have been paying an extra $1000 a month on our 5.25% mortgage so that we would own our home free and clear by May 2010. I always thought that while this might not make the most financial sense (e.g. I could borrow at 5.25% and hopefully invest the money at a higher rate) that it would provide me with peace of mind, etc. In addition, while I never put pen to paper, I didn't think the financial benefits of "investing the difference" were that much more than prepaying.
In retrospect, I think I screwed up. Our family income prevents us from contributing to a Roth IRA. We currently max out our 401-K contributions ($31,000 per year total), and I stopped continuting to regular IRA (e.g. putting post tax money in) a number of years ago. Obviously, a lot of the money that could have gone into the IRA went into the house. I now understand that in 2010, I have the ability to convert a regular IRA to a Roth IRA (no income limitations--assuming the current law does not change. Making this conversion would create a tax liability which I understand I can spread out over 2 years.)
Had I been smart enough to recognize this opportunity a few years ago, I think I would have come out way ahead in the long run by taking the money I was using to pre-pay the mortgage, putting it into a regular IRA and then, in 2010, converting it to a Roth IRA. Under the current law, this would have been my chance to create a Roth that could grow tax-free, and when withdrawn, would never be taxed. This may be an opportunity I will not get again. (My employer does not offer, nor do they currently plan to, offer a Roth 401-K.)
I am not trying to make this out to be a horrific financial tragedy, but it did give me pause to more clearly see the potential financial benefits of carrying a mortgage that some of you have spoken about in the past.
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