Why Payoff Your Mortgage

Fairfax, Virginia: Homeowners have been arguing this point since the invention of mortgages many years ago. Should a homeowner payoff their mortgage faster in order to save interest? Or should the homeowner invest that money into 401-K and other retirement vehicles to accumulate more money for retirement? The true answer lies in what is the right choice for your financial situation. Below I have tried to present both sides of the equation equally. Please let me know what you think. Once you are finished with the article check out some great information on my other site:

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There are several advantages to paying off your mortgage early.

Freedom- Not much more needs to be said about this. The freedom from monthly mortgage payments can be huge both psychologically and emotionally. What would it feel like to not have a mortgage payment each month?  If you paid off the mortgage and eliminated your other consumer debt, you could live debt-free. Well maybe – no mortgage would allow for more consumer spending, which could mean more bad debt. But it could leave additional money for basic necessities such as: food, heat, electric, gas (car and home). Not having a mortgage would certainly cut your monthly expenses.

Safety: Once you’ve paid off your mortgage debt, you own your home. Taxes and insurance must still be maintained even after the mortgage is paid-off. Believe it or not, homeowners actually lose their home for not paying their property taxes on homes owned free and clear of any mortgage. Your home is always a liability as long as it costs you money each month. Never forget that. Here is a nice article from AARP writer Jonathan Pond.

Reduced Stress: No monthly mortgage obligation would certainly be nice! You wouldn’t have to worry as much about losing your job, for instance.

Liquidity: Less spent on paying down the mortgage allows more money for other investments. But no mortgage allows for more money to be allocated for other investments also. But the real question has to do with the opportunity cost of money. Where is the biggest bang or investment opportunity for your money and will it grow faster now or later.  You could invest your monthly payment in a financial product, or build up a large rainy day / emergency fund.  Cash is still king and it is very liquid.

Why Have A Mortgage

Taxes: Interest and taxes are deductible up to your income tax bracket. Not having a mortgage means that you can’t deduct your interest payments off your federal income taxes.  But that alone is not enough of a reason to keep a mortgage. Here is one recent NY Times article on why it might not be a great idea to pay off your mortgage.

Investing: This nice article by Ric Edelman on having a mortgage where he puts forth that it makes better financial sense to pay your mortgage payments regularly, and invest the extra money instead. Theoretically, you make more in the long-term with this method; after all, average returns on stocks over the past 60 years are in the 9-10% range. But the recent fall in the stock market make it hard to stomach investing sometimes.

Liquidity: Yes – this again.  It works both ways. Todd Ballenger at Kendall Todd also says that keeping your money in liquid form (ie: stocks, bonds, etc.) might be a better option until you are ready for retirement.  If you pour all your money into your house, then the question is can you access your money again? If yes, how easy is it to get to? How fast do you need the money? With the drop in home values across the country and in Fairfax, Virginia your equity (money) might not be their or you might not qualify for the mortgage program. Staying liquid means that you can access your money quickly when you need it.