Federal Reserve Paper and Commentary
October 31, 2006 posted by Ancora Financial
The Tradeoff between Mortgage Prepayments
and Tax-Deferred Retirement Savings
August, 2006
Abstract
We show that a significant number of households can perform a tax arbitrage by cutting back on their additional mortgage payments and increasing their contributions to tax-deferred accounts (TDA). Using data from the Survey of Consumer Finances, we show that about 38% of U.S. households that are accelerating their mortgage payments instead of saving in tax-deferred accounts are making the wrong choice…
Get the entire paper in PDF format.
One of our own federal banks—Chicago’s Federal Reserve Bank—has determined that by accelerating mortgage payments instead of stashing money in tax-deferred accounts, more than one in three Americans are making the “wrong choice,” and are giving up potentially important arbitrage gains.…
