This is a new feature on Adventure Money, pitting the top financial gurus of the day in a battle of financial ideologies. Yes, it’s the Ultimate Financial Guru Championship. Here’s how it works. First, we find and introduce two gurus with two opposing viewpoints. Then, being as fair as possible we analyze the merits of each argument. Finally, assuming there isn’t a knockout and the fight goes the distance, we declare a winner.

One thing that is worth clarifying. The debate is about the issue at hand and has nothing to do with any other positions each respective guru might hold.

The inaugural UFGC pits Suze “The Animal” Orman up against Doug “Missed Fortune” Andrew. Now, let’s meet our fighters:

Suze Orman (from her website):

Achieving and maintaining financial security ranks as one of peoples’ major sources of anxiety today. Few understand this better than Suze Orman, an internationally acclaimed personal finance expert whom USA TODAY called a “one-woman financial advice powerhouse” and “a force in the world of personal finance.” From her earliest childhood years and the stress of her father losing his business, to her post-college job working as a waitress, to climbing the ranks in the investment world, to becoming a bestselling author, Suze has lived and learned many hard financial lessons. She has been able to translate these experiences into frank, savvy financial advice that has transformed the lives of millions around the world.

A two-time Emmy Award-winning television host, New York Times bestselling author, magazine and online columnist, writer/producer, and motivational speaker, Suze is undeniably America’s most recognized expert on personal finance. Suze is on a mission to change the way people feel, think, and act about their money.

Doug Andrew (from his website):

Douglas R. Andrew is the founder of the Missed Fortune movement, a national revolution in financial planning launched by his best-selling books, Missed Fortune: Dispel the Money Myth-Conceptions—Isn’t It Time You Became Wealthy? and Missed Fortune 101 (both published by Warner Business Books).

With experience in business management, economics, accounting, financial and estate planning, and advanced business and tax planning, Mr. Andrew is a sought-after national speaker and financial planning expert. He is currently the owner and president of Paramount Financial Services, Inc., a comprehensive personal and business financial planning firm with several divisions.

Partnering with financial services providers nationwide, Mr. Andrew’s primary mission is to help people experience their own “Missed Fortune True Wealth Transformation”—maximizing human, intellectual, civic and financial assets for a fulfilling life, now and during retirement. To that end, he is also a national advisory board member of Empowered Wealth LC, a company dedicated to optimizing the full spectrum of assets.

Okay, now that we know a little about these two, LET’S GET IT ON!

The issue for debate: PAYING OFF YOUR MORTGAGE EARLY

Orman says: Pay if off early!

From an article titled Five More Money Mistakes to Avoid:

2. Not paying off the mortgage early.

Men tend to hate this idea. They love leverage, especially when it comes with a nice tax break from Uncle Sam. At the same time, most women will tell you the one security blanket that would make them feel safest is knowing they would always have a home to live in.

An alarming 46 percent of women respondents to a recent survey sponsored by Allianz Life Insurance Company of North America said that the prospect of becoming a “bag lady” weighs heavily on them. Women view their home as shelter; men view it as a tax shelter. So who’s right?

Well, if you’re living in a home you intend to stay in and are at least 50, I think paying off the mortgage early is one of the smartest moves you can make. For security, plain and simple.

Yes, you give up the tax break of being able to deduct the mortgage interest, but you also give up the responsibility of making a monthly mortgage payment. That’s a huge weight off your financial shoulders in retirement.

My advice if you are 50 or over is to scale back on your 401(k) contributions so you invest just enough to get your company match. Then use the extra money that will show up in your paycheck — yes, even after the fact that it’s taxed — to accelerate your mortgage payments.

Will you end up with less in your 401(k)? Of course, but you’ll need a lot less because you won’t be stuck paying your mortgage once you retire.

Andrew says: Keep that mortgage!

A chapter excerpt from his book Missed Fortune 101:

THE TRUE COST OF EXTRA PRINCIPAL PAYMENTS

Another common misconception about the path to financial independence is that the best way to pay off a house is to make extra principal payments on your mortgage. There are various methods that people use to do this. Some homeowners use the biweekly payment plan to accelerate their mortgage payoff. Others use fifteen-year mortgages rather than thirty-year mortgages to accomplish their goal of outright home ownership. I will prove in this book that no method of paying extra principal on your mortgage is the wisest or quickest method of accomplishing financial independence.

A homeowner can accumulate the amount of cash needed to pay off a home just as soon or sooner by using a conservative, tax-deferred mortgage acceleration plan. The most important elements of home equity management are maintaining liquidity and safety of principal and creating the opportunity for home equity to grow in a separate side fund, where it is accessible in the event of an emergency.

It is essential to maintain control of your home equity to allow it to earn a rate of return. Home equity has no rate of return when it is trapped in the house, as I will explain. I’ll also explain why your home may likely sell much more quickly and for a higher price with a high mortgage balance rather than a low mortgage balance.

Learning to manage the equity in your home wisely will allow you to utilize one of the few tax deductions that we Americans have left: our mortgage interest. You can actually pay off a home using a thirty-year mortgage in thirteen and a half years with the same cash outlay required to pay off a fifteen-year mortgage. And you can accomplish this by using some of Uncle Sam’s money instead of your own! This book will teach you how to dramatically enhance your net worth and generate an extra million dollars or more by safely using lazy, idle dollars that are trapped in the equity of your home.

Let me reiterate and clarify why many Americans are remiss in arriving at the degree of financial independence they could otherwise obtain. While we do everything in our power to get tax deductions on our retirement contributions and investments, we simultaneously eliminate one of the few and best deductions we have: our home mortgage interest.

Hence, most Americans prepare for the future by postponing tax while getting rid of their tax deductions.

Analysis

I think how one views this debate is going to largely depend upon where one finds themselves on their financial journey. Many people seem to have a strong aversion to debt, though perhaps justified. Learning to manage debt is not a trivial matter and not always easy. For many people, the best course of action is to avoid debt whenever possible. However, there are also those who wish to take a bit more aggressive attitude toward their finances and want to explore the opportunities granted by debt.

From a purely financial perspective, debt is beneficial to carry if the borrowed funds can earn a higher return elsewhere. It’s a bit more complicated than that—risk adjusted returns should be considered—but that’s a good place to start. Essentially that’s how banks make their money. They borrow money from you at a low rate and then they lend it out to your neighbor at a higher rate. It’s a very simple and age old business strategy, but many of us don’t think it’s something we should be doing. Why not?

Consider today’s mortgage rates in the 5.6% range. It’s not unreasonable to think you can earn a higher return with a portfolio of index funds. And that’s without taking into account the fact that mortgage interest is tax deductible. If you are in, say, the 28% tax bracket, your effective mortgage interest rate is actually closer 4%. Certainly, one can expect to earn higher returns elsewhere. So does it ever make sense to pay off your mortgage early?

Well, maybe. That 4% effective mortgage rate may be a low return on your investment, which is essentially what you’re getting by paying off your mortgage early, but it is risk free. Further, perhaps the spread between what you’re “earning” by paying off your mortgage and what you can earn elsewhere is worth less to you than the feeling of freedom you get from not having a mortgage. I’ll be honest, it’s not to me, but it might be for you. That’s basically what it boils down to.

Only you can decide what is appropriate for you when it comes to paying off your mortgage early. If you have an appetite for some risk and want to maximize your returns, you’re probably going to want to keep that mortgage for as long as you can and invest your money elsewhere. If you’re more concerned with being out of debt, go ahead and pay it off early.

So, where does that leave us in our battle?

Well, after a long, hard tough fight by our two UFGC warriors…

…I’m going to have to declare this one a draw.

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