Protesting budget cuts in Berkeley, Calif.
On today's Planet Money:
— Here's an economic riddle: A listener says teacher colleges in his nation compete for students by making the coursework easier, resulting in rookie educators who aren't as well-trained as they might be. What would an economist call this problem, and how can it be fixed? Robert Frank, author of the Economic Naturalist's Field Guide, spots an answer.
— Should good teachers make more than bad ones? The Obama administration says the nation needs to start rewarding merit, and economist Michael Podgursky of the University of Missouri agrees. It's just that there's no simple means of carrying that out.
Bonus: They're so glad they paid off their mortgage.
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Responding to the debate about paying off a mortgage, Jason McDonnell writes:
I find it strange that people feel that they will live a life with a home mortgage hanging around their neck.
My wife and I waited till we were nearly 30 before we bought our first home. Back in 1999 we searched around SE Michigan and bought a brand new home for $163,700. Our realtor at the time said to us "Do you want to buy a house that cheap?". We were qualified for $245,000 at the time.
When we bought the house we put 20% downpayment and avoided the excess PMI fees that others with 10~5% down did. Then we made a budget and paid each month our monthly payment, plus 100% of any overtime take home pay, after taxes. Any bonus, Christmas gift, etc was put against the home loan. Each year when we got raises, we put 100% of the additional take home pay, towards the home loan. Near the end of paying the loan off we were paying over 2x the minimum payment.
As interest rates fell, we avoided swapping our 7.75% mortgage for a cheaper one, because at the time we would pay more in refinancing fees than what we would save at the rate we were paying the loan off. In the end it took 3 years and 5 months, but we paid off our loan in FULL.
Since that time we have been free of a home mortgage for over 6 years. When we moved from Michigan to Arizona we got discounts as we could pay cash for the house. As the housing market fell it is sad we lost equity, but at the same time we can buy about the same house else where for about what our home is worth. Our exchange value has not changed much, so really it is not a big loss.
I can't understand why you would pay the mortgage and not get out from under it. The standard IRS deduction covers us just fine and we have lots of money to do as we wish. If we lose our jobs, it is not a horrible issue as no one is going to take our home away. We could flip burgers and still stay in the house.
For us, there is no NEW ECONOMY. The basic systems of money do not change. With the biggest rule: Don't owe people money for anything you don't have to.