Why your planner wants you in debt

(Money Magazine) -- Recently I was talking to a client of mine who has a second mortgage at 8%. As we went over his investment options, I suggested something he had never heard before: He should pay down his mortgage.

Most financial planners would rather memorize actuarial tables than have you pay off a mortgage. They'll say, "An 8% mortgage costs you only about 6% after your interest deduction. I can do better than that in the stock market."

The Mole is a certified financial planner and certified public accountant who thinks you should know what goes on behind the scenes. Want to make contact? E-mail themole@moneymail.com.

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Well, yes, perhaps it's true, but the stock market isn't a sure thing. Paying off your mortgage is.

A fairer comparison would be putting your money in risk-free Treasuries. Sure, paying off an 8% mortgage really means a return of around 6% after taxes, but Treasuries pay just 4.6% or so (around 3.5% after taxes).

If early payment makes so much sense,why don't my colleagues tell you to do it?

Because in most cases, the more money you let your planner manage, the more he earns. There is absolutely no money to be made from your thriftiness.

To make matters worse, mortgage brokers are now teaming up with financial planners in an unholy alliance. I've been receiving more and more calls from mortgage brokers asking me to send clients to them.

Why? The brokers want my clients to refinance their mortgages or take out loans against their homes. In return, I'd get to invest some of the newfound cash, guaranteeing broker and planner tons of fees and commissions while sticking you with the tab.

My advice: If you have cash or bonds (beyond a well-funded emergency cushion) that are earning less than the after-tax cost of your mortgage, get rid of them and use the money to reduce your mortgage debt.

And if you have a planner who has you in that situation, ask him why he hasn't advised you to pay down the mortgage. Be on alert: Some tap dancing may follow.