The decision to pay off the mortgage early is always a hotly debated topic. Unfortunately, the question of “should I pay off my mortgage early?” can’t be answered easily because everybody’s circumstances are different. In fact, there is no right answer.
With that in mind, it’s important to consider the arguments for both sides, and then decide the course of action that works best for you.
Reasons to Pay Off the Mortgage
You want peace of mind. Let’s face it: Many people sleep better at night knowing they’re not in debt.
You have a high interest loan. If you’re stuck with a high rate loan, you’re typically better off retiring the loan as early as possible. Remember, those extra payments act as investment with returns at essentially at your loans rate of interest.
Reasons Not to Pay Off the Mortgage
You’re not saving for retirement. Before make any extra mortgage payments, you should always make sure you’re taking advantage of any matching retirement contributions from your employer.
You can get a better return by investing the money. This scenario is usually common for mortgage holders who have low interest rate loans.
You’re getting a big tax break. This is important to consider if you pay a lot of interest. For example, someone in a 28% tax bracket who pays $15,000 in mortgage interest would be entitled to a $4200 tax deduction.
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Readers: This is article 18 of 25 from my no-nonsense “Mortgage Basics” quick-reference series.
Photo Credit: GotCredit
I think most people have bind investments that yield lower rates than their mortgage interest, so most people should pay off the mortgage early really
Paying $15,000 in interest to get $4200 in deductions (not credit, but deduction) is bad math all around.
We paid cash for our home, and I have no regrets. It makes our monthly bills small (under $650 for a family of 7.) We have been able to take a year long sabbatical. We also got a better deal when we bought it because we could pay cash. It might not be right now everyone, but we love it.
Good for you, Ms. Montana! I’m glad the paid off house has brought you peace of mind.
Having heard all the arguments and done the math on paying it off early versus sticking to the mortgage schedule and investing extra money, I’ve got to say I will still pay off my mortgage early. Investments aren’t guaranteed, but once a debt is paid, it’s paid. That kind of peace of mind is worth more than any extra returns I could earn.
Plus, knowing my spending habits, the money is less likely to buy a luxury vacation or new car that I don’t really need if it’s tied up in my house.
We are paying our home off early, at the end of this month. For us, it was about peace of mind and security. I dont anticipate regretting our decision.
I paid off the home by age 40, and never looked back. Certainly, there is peace of mind, but it also had a few hidden surprises. My employers treated me with more respect knowing I could walk at any time, plus it also gave me a sense of freedom knowing I was not stuck in economic servitude. As for retirement planning I pounded the released obligations into an RRSP (our version of 401s).
Mortgage interest is not tax deductible where I live, and has changed in other locales as well.
And as for retirement choice, you can pull the pin much earlier. If you have a mortgage to pay you are stuck on the hamster wheel….even in times of illness or job change. In some countries you get sick or hurt you end up loosing the house along with medical bills. Double whammy. The biggee is that in some locations the sale of a primary home is NOT taxed. Secondary homes are, but not primary homes. You can buy a fixer upper, live in it for a year or two while fixing, sell it and reap the profits. I did this and bought additional property. Sweat equity is free and the opportunity was based on not having a mortgage or rent to pay every month.
One last thing, I did this as a modestly paid blue collar worker.