Is it Best to Payoff a Mortgage as Soon as Possible?
Many people do not like the idea of being in debt, as they shouldn’t, and pay extra each month to attempt to pay off their mortgage early. This is usually an emotional or psychological based decision, not financial or mathematical. There are reasons to pay a mortgage off early, but there are also many reasons to not.
It is best to pay off high interest loans first. Credit cards and auto loans tend to have higher interest rates than most mortgages. Due to their high interest rates, especially credit card balances, people are much better off paying down credit cards than making extra payments on their mortgages. Remember, the interest paid on a mortgage is a tax deduction which will effectively lower the interest rate by 1 or 2 points depending on the amount of interest paid in a year. Thus making the likelihood of having higher interest rates on something else much higher.
Also, it should be considered as to what your money would be doing if you didn’t use it for accelerated mortgage payments. Assuming high interest loans have been paid down, how would you be using your money? Do you need to be liquid to pay for upcoming big expenses? Could you be making more money in the stock market than what you would be saving on your mortgage? (That is, is your rate of return in the market higher than the interest rate on the mortgage? If so, your money might be better spent in investments) Do you need the cash for children or college education? If you answered yes to any of these, it might be a better idea not to pay off the mortgage early.
However, many people, especially soon-to-be retirees like to payoff mortgages early. It is a good feeling to retire debt free and some retirees might not surpass their standard deduction come tax time, and would not be able to deduct the interest. Thus, making the idea of paying down the mortgage sooner, a much better one.
What is the best option for you? Only you can decide, but it is best to take a financial approach to the decision and not an emotional one.
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