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February 24, 2008

Does paying off your mortgage early make good cents?

The question of the day is should you pay off your mortgage early? In speaking with my financial adviser, he advised against paying off my mortgage early. I have been making extra payments against the principle each month in hopes of paying off my house before I retire. It just felt like the right thing to do if I could pull it off. My adviser said that I should consider that the rate on my mortgage, 6.25%, is fairly cheap money. He felt that the extra being paid should be invested. There is a good chance that it can earn as much or more than the interest I am paying on the mortgage. I could agree with that, but was not convinced that I wanted to change my strategy. Where he sold me was when he reminded me that I only have a couple of years left to use my kids as a tax deduction. Once they are out of the nest, the mortgage deduction will be about the only big deduction I will have left. I might as well take advantage of that as long as I can. Uncle Sam gets enough of my money. I don't need to give him more. As long as my wife and I maintain the discipline of saving the money that we were paying down the mortgage with, I can live with my planners suggestion. It makes good cents and sense to me...

2 comments:

Anonymous said...

My wife keeps wanting us to pay down the mortgage. On the one hand it would be nice to be debt free, but I agree with your financial adviser. I think my loan is a little over 4.5% and I can almost get that on savings now. Plus the tax benefit. Wow, don't pay it off too soon.

Anonymous said...

I know what your planner says makes sense on paper, but I have to disagree. Number one the tax deduction. Is it more important to you to pay less tax, or to have more money in your pocket? If you are in the highest tax bracket at best for every $1,000 in mortgage interest you pay you will save $350 in taxes.
#2 Other investments will go up and down, and to get better than 4.5% interest in todays markets you will have to risk principal. Paying off your mortgage is a sure thing.
Sorry to be so long winded, but I paid off my mortgage 3 years ago and it was the best thing I could have done with the money.