Tuesday, April 15, 2014

Paying off a Mortgage - Yes or No

Paying off a Mortgage - Yes or No

For myself, having just purchased a home last year with a 30 year mortgage - paying it off sounds like a really long term goal.

But, for some - maybe it's not and there are some things that the"experts" recommend.

Hopefully your current mortgage rate is under 5% - if not, as a Realtor, I would highly recommend looking into refinancing that debt.  Most likely you could not only reduce your monthly payment, you could probably reduce your payment term.  All the experts seem to agree that making additional principal payments will pay down that debt quickly - so always keep that in mind.  With interest rates so low on mortgages, that is why you really need to look at all your debt and investments.

Some would say if you have a low interest mortgage - you might get richer by investing that extra money somewhere else.  Long term investors in stock owning mutual funds are currently hoping to earn far greater returns than what they are paying on their mortgage.  Then some will throw in the fact that the interest you pay on a mortgage is tax deductible - but that can be a whole other pro/con discussion we will not go into at this time.

If you have credit card debt - EVERYONE says you need to focus on paying that off first.  I GUARANTEE the interest rate you are paying on your cards is WAY higher than your mortgage.  And that interest is not tax deductible.

Financial advisers to those who have retirement on the horizon say to max out your retirement contributions before making extra payments toward your mortgage.  Preferably into an IRA or Roth IRA which have tax deductions and are tax-deferred.

Most also agree you should never pull money out of a retirement account to pay off a mortgage.  You will have to pay taxes on that money if it's a traditional account along with depleting your savings and possibly pushing you into a higher tax bracket.  Doing this without some serious consideration and/or counseling could leave you house rich but cash poor - and you will still have monthly bills!

Perhaps it is time to downsize.  As long as you are not in California - you might be able to pay cash for the smaller home or take out a significantly smaller loan.  If you do pay cash - you could potentially tap the home for an equity loan or reverse mortgage.  AGAIN - so not do either of these without professional financial counsel.

If you have paid off consumer debt and are funding your retirement - then it makes sense to focus on getting that mortgage paid down or off.  Remember the mortgage burning parties of old?  The most favorable argument for getting your mortgage paid off is peace of mind  - owning your home free and clear.

Best advice - have a professional financial adviser look at your overall picture and goals to determine the best path to follow.

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