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The Benefits of Paying Off Your Mortgage Early

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The word “mortgage” comes from the French. It literally translates to “death contract”. Not a pleasant thought or analogy, is it? But someone got it right a long time ago. Considering that a mortgage payment is one of the largest expenditures that most people will have to face in their lifetime it is well worth the time and effort to investigate whether or not it is beneficial for someone to pay-down their mortgage faster, and get out from under that debt responsibility

As in all debates there are two or more sides to every issue and experts will rail against each other endlessly to prove that their point is the one to be taken.

One financial advisor tells us not to pay off our mortgage early for the following reasons:

  • How much do you really save with mortgage interest tax credits?

If you pay down your mortgage you will no longer be able to take advantage of the tax deductions the government offers for interest payments on the loan. However, if you do the calculations they will show that the advantage is not as great as they are touted to be.

Example: If the average American homeowner pays $10K in mortgage interest annually and the deduction for that is$2.5K they are still paying $6.5K every year in interest. A savings sure, but is it worth it, do you really gain that much? We think not. If the mortgage were paid off you would be saving the total, $10K.

  • Are there actually better investments to put your money into?

Some financial experts feel that it is more prudent financially to make regular mortgage payments and invest the extra available cash in other assets and diversify your portfolio. In the past that may have been a good move with average returns over a long period of time being nine percent. But with today’s instability in the markets, and the most recent fluctuations that have left many in the red, is it worth the risk to do so. The stress alone from this kind of investing for the average American seems to not be worth it given the current climate.

  • How important is the liquidity they all talk about?

The third argument for not paying off your mortgage dictates that you would put that money into liquid assets such as stocks, bonds, or cds. They argue that if all of your savings are locked into your home then you have ostensibly prevented yourself from taking advantage of any other form of investment. The point of this strategy is to have investments that will allow for you to pull out quickly and have ready cash for emergencies, or for better investments that you may be able to avail yourself of when they present themselves.

The other financial advisor insists that you have everything to gain from paying down your current mortgage and being free and clear of those substantial payments.

  • The blessed freedom of not paying out that huge lump sum every month.

It seems to us that a logical person would not want to carry the stressful burden of making a mortgage payment every month. Not only does it free up a lot of cash, but it relieves one of the burden of worrying about their job status relative to being able to make the payments and not damage their credit. It will also protect the ability to have outstanding credit for future needs.

Not only will it allow for more latitude when making career decisions, but it also provides the means for investing in a child’s education, or a major expense like improving the home and property, or purchasing a second home for retirement or vacationing. The uses for this money are as varied as there are dreams.

  • That liquidity thing again, but from a different perspective entirely.

Although it is mentioned above as a reason to not pay down your mortgage quickly, we feel the extra cash on hand that would have gone towards a mortgage represents real liquidity; cash on hand, money in the bank, an emergency fund, the proverbial cookie jar. Depending on the value of your property and the loan you would have been paying the savings could be a few thousand a month. Seems like basic math and very straight forward to us.

  • The inherent safety of actually owning your home outright.

As some experts note, a home is the only investment that you can live in. If it is completely free and clear of debt you will always have a place to live. Living in such ambiguous times as we now do, and all the models from the past regarding every type of investment vehicle being broken, the security of knowing where you will lay each and every night is nothing to be scoffed at. 


A mortgage calculator to help you figure how much you can save if you pay down your mortgage. Try our free Mortgage Payoff Goal Calculator and see how much you can save by paying off your mortgage loan early.


 
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