Should you Pay your Mortgage Off Early?

navy blue house

If you own a house, chances are you’ve considered making extra principal mortgage payments in an effort to pay your house off faster.  However, there are some pros and cons to paying a mortgage off early. I was always under the impression that when we were in a financial position to prepay pay the mortgage that we would.  Lately I’ve been reconsidering that, especially while we are in a period of transition with our finances.  Here are some of the factors I’ve been considering.

Better Investment Return

Many investment advisers and finance experts recommend that instead of making extra principal payments, the money is going to bring greater returns if invested instead.  A conservative estimate for stock market returns is around 7%, and if your mortgage rate is around 3-4%, you’re probably going to come out way ahead in the long run if you invest.  Of course, there are other factors to investing, but personally I think it would be a good idea to max out retirement account contributions (I like Roth IRAs at Vanguard) before trying to pay off the mortgage early.

Money is Inaccessible

A huge mental block I have is that any extra money you put toward the mortgage is inaccessible unless you refinanced or took out a home equity loan.  For that reason, I wouldn’t recommend that someone who doesn’t have a 3-6 month emergency fund pay extra on their mortgage.  I would get that emergency fund in place first and then go from there.

Home mortgage interest deduction

If you pay interest on your mortgage, you may be able to deduct the interest on your taxes.  Of course there are stipulations, one being if you don’t itemize your taxes it doesn’t help you. The home mortgage interest deduction is only valid for the amount you deduct over and above the standard deductionwhich is available to taxpayers who don’t itemize their returns.

Those are some of the cons for paying off your mortgage early. Here are some of the pros of paying it off early.

Guaranteed Return

If your mortgage rate is 4% and you make extra principal payments, you could look at it that any money you put towards the mortgage is saving you from paying interest, so you are “earning” 4% on that money.  Sometimes I have to think of things this way to have it make sense to me.  I remember when savings accounts were paying 5%! Those were the good old days.

Financial freedom

I think the biggest advantage to paying off the mortgage early is having financial freedom. Imagine not having to make a mortgage payment each month!  How amazing would that be? That would be a huge amount of money each month that could be put towards retirement contributions, kids college savings, travel funds, or whatever you wanted!  I hate debt and the thought of not having a mortgage payment feels like a dream.

Basically I think it all boils down to your personal financial situation. I don’t think there’s any harm in paying off a mortgage early if it is what you want to do.  I know I would sleep better at night knowing I didn’t have a mortgage payment, and that alone is priceless!  I feel like if you’re even thinking about paying off your mortgage early, you’re probably doing pretty well 😉

What’s your opinion on paying off the mortgage early?

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Paid Off The Home Mortgage…..Now What?

This is a guest post from Joe at SmartMoneyFocus.com. Joe is on his way to be an asset millionaire by age 41.

I remember the day that we paid off the mortgage like it was yesterday. My wife and I sat down and wrote the check to the mortgage company. It was the biggest check that either of us had ever written by far. It was for $167K. We had been saving and investing for this day for about 7 years and it was sweet. This was the end of our debt free journey. We had saved and worked hard to pay off, not only the mortgage, but also student loans, cars and credit card debt. We got there faster than I thought we would, but I did not know where our journey would take us.

After our little triumph, I knew we needed another focus to keep us headed in the right direction. We decided to focus on our three boys and their college education. They are young and we had 10 years before the oldest would hit college age. We now had the “mortgage” money to put towards college, as well as our accelerated “house payoff” fund. Again, we focused and put our efforts into this quest. I am proud to say that we have enough to send all three boys to school for their bachelors degrees. We had done this with good investments, saving and other activities that brought in extra money.

We were not done, no, we had to focus on something else. It was time for us to focus on building wealth, real wealth. This is our latest quest. We are in the process of building up a nice portfolio of assets. We are diversifying our money generating activities by saving, of course, but also by investing and creating multiple streams of income. We are not there yet, but we are on our way. We have a goal to hit the $1 million asset mark by the time I turn 41. That’s a little over a year from now. Our goal, is to have $3 million in assets by my 50th birthday and to be able to not work at a JOB. I would like to be in a position to have my own company by then and create a great place to work and help others achieve wealth.

All this has been possible because we have focused. It has taken us about 10 years to get to this point. I know that some say that we have achieved a lot in these past 10 years and others have said that 10 years is a long time to achieve where we are at. The truth is that it has been right for us. We have done it at a metered pace. We still take vacations to nice places and go out but we live within our means. I am blessed with a good job and have made great investment decisions. We are living proof that most people can achieve what they want with their money if they keep focusing on their goals. Keep at it and you can get where you want to be in shorter time than you think.

Joe Edward is in pursuit of creating wealth for financial independence. Joe believes the right focus on five key areas are a way to financial independence:
-Maximize Career
-Save, Save, Save
-Debt Free Living
-Invest, Invest, Invest
-Create Multiple Streams of Income
Joe is well on his way to be an asset millionaire by the time he turns 41. He started SmartMoneyFocus.com to help others achieve their own paths to financial independence. Follow him on Twitter: @smartmoneyjoe

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Pay Off the Mortgage Early

Last year I shared how I can’t bring myself to pay extra on the mortgage. Fortunately, since then I’ve been able to bring myself to make a few additional principal payments on our mortgage, and I love seeing them applied directly to principal.  It’s a great feeling.  However, we have many more years to go and many more mortgage payments to make.  So far we’ve eliminated at least one mortgage payment off the life of our loan, and it feels awesome.

When we refinanced our mortgage a couple years ago, instead of going with a 28 year mortgage (the amount of time that we had left on our original mortgage), we stretched it out to a 30 year mortgage to get a lower payment.  One of our goals is for me to be a stay at home mom whenever we do have kids, so that was a huge factor to us.  We figured we can always pay extra on the mortgage if we choose, but we can’t pay less.  It’s worked out well for us so far, and that’s really all that matters.

But since we’re completely debt free now except for the mortgage, I’m thinking about stepping it up a bit and making even more extra payments and hopefully for even more money.  I’ve shared my reservations about paying extra on the mortgage before, but they mainly are these: I don’t know how long we’ll actually own this house, and what if we need the money?

I calculate the amounts for us to pay off the mortgage in so many years versus refinancing.  I don’t want to refinance our mortgage right now because we’d have to pay closing costs, we’ve already got a pretty good rate, and I don’t know how long we’ll be in the house.

-To pay off our house in 26 years (the original amount of time we’d have left if we had kept our original mortgage), we have to pay $22 extra a month.
-To pay off the house in 20 years, we’d have to pay an additional $135 per month.
-To pay off the house in 15 years, we’d have to pay an additional $308 per month.

Since one of our goals for this year is to live on one of our salaries, I’m thinking about taking a portion of my salary and applying it directly to the principal of our mortgage.  I’m thinking that $200 a month is an amount that won’t break the bank if we really needed it, and it will make a nice dent in the mortgage.  If I can continue that amount, we’ll have the mortgage paid off in 18 years.  Wow.  Of course, if I’m unemployed or Mr. Money is, we’ll have to change our plans and probably stop the extra payments.  For now though, I think it will definitely work for us, and I am happy that finally I’ve come up with a plan.

I’m going to keep plugging away at the mortgage and watching the balance go down. I can’t stand to see the thousands of dollars each year we spend in interest for the mortgage.

Do you think it’s a good idea to pay off a mortgage early?

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