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To Pay Or Not To Pay (Off) – Your Mortgage

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Like rent vs. buy, the classic question of whether to pay off your mortgage or invest the money has been debated ad infinitum. What is funny is most of the time the financial advisers are suggesting you should invest (especially with low interest rates) while normal folks (like me) usually opt to pay off a little more and avoid the interest. Morningstar writer Christine Benz suggests that aggressively paying off your debt may not be a bad idea, considering “lower return projections [on potential investment alternatives to paying down your mortgage] make it hard to argue that any debt can reasonably be considered good debt.” There was a discussion in the comments section of a previous article where we went over these same exact points.

The article lists six questions you have to ask yourself before you decide:

  • What’s Your Time Horizon?
  • Are You Taking Maximum Advantage of Your Tax-Sheltered Options?
  • How Much Is That Interest Deduction Saving You, Anyway?
  • Are You Paying Private Mortgage Insurance?
  • Is Your Interest Rate Fixed or Variable?
  • I have a longer time horizon, which is a point for not paying down my mortgage because I can pick riskier investments. I’m also taking advantage of my tax-sheltered options and so that’s a point for paying down the mortgage faster (if I wasn’t, I’d put that money in a Roth IRA). My interest deduction is not significant but not high enough to give me a reason not to feel pressure about paying all this interest. I have no PMI, so no rush to get to a debt-to-value ratio to a point where I can cancel it. Finally, my interest rate is fixed so I have no rush to pay down the principal before it is adjusted.

    Overall, according to those questions, I have actual reason to pay it off sooner but not a lot of reasons not to pay it off. I’ll be sticking with my previous strategy of paying off the higher second fixed mortgage and then reassessing my options after it’s been paid in full.

    { 5 comments, please add your thoughts now! }

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    5 Responses to “To Pay Or Not To Pay (Off) – Your Mortgage”

    1. Caitlin says:

      good job summing it up! it finally makes sense :)

    2. Maxim says:

      I loved your comment about pixel advertising on Nev’s site. I agree with you 100%. I like your site as well.

    3. Phil Town says:

      Good things to consider. I posted on the same topic too.

    4. Nice collection of articles!–Thanks for putting them together.

      Here’s one opinion on the matter from Motley Fool, which argues that in some circumstances it’s better not to pay the mortgage off early and instead invest the money you would put toward the reducing the mortgage principal into an investment account.

      http://www.fool.com/foolu/askfoolu/2001/askfoolu010307.htm

    5. Paying off your mortgage can be a very valuable tool to increasing your wealth. Another valuable tool is USING your equity. One way to do so is through private mortgage investing, also known as hard money lending. Find out more at http://private-mortgage-investing.blogspot.com


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