Friday, August 15, 2014

Should You Pay Off Your Mortgage?

Pros and Cons of paying off your mortgage early.

Few can truly describe the moment in which you are financially free.  Free from debt. Free from living paycheck to paycheck. Free from financial worry. Building a comfortable savings and eliminating debt is possible at any age with smart planning.

According to Forbes.com, it’s easy for people to answer questions like “Do you want to pay off debt?” or “Do you want to save money?” however, deciding whether to pay off your home mortgage becomes more complex. Often this stems from a commonly held belief that paying off your mortgage is impossible or strategically foolish. Let us point out that it is very possible to pay off your mortgage (and not just in a distant 30 years), and when over 75% of those on the Forbes 400 list advocate paying off your home as quickly as possible, it’s viable to look at the reasons why.

1 – Emotional Freedom

There is no way around it – debt is oppressive. Rising interest rates, looming balances and watching your money disappear each month are top sources of stress, anxiety, insomnia, migraines, ulcers, depression and heart attacks. This drain on your emotional well being affects your health as well as other areas of your life including your career, your marriage, and your children. Perhaps you haven’t reached this kind of desperation but the take away is basic – You feel trapped when you owe money. You feel liberated when you don’t. The freedom to make decisions and live the life you want changes when you are no longer impacted by monthly mortgage payments.

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2 – Removing Risk

The brutal truth of it is this…as long as you have a mortgage – you don’t own your home. If you fail to make your monthly payments, you could be forced to short sale the property or face foreclosure, both of which leave lasting negative marks on your financial profile. Many people talk about the benefits of investing the money you could pay towards your home into mutual funds or the stock market. This still does not remove the risk of losing your home. You need to ask yourself: If my mortgage was paid off, would I pull out money (equity) to invest it? If the answer is no, your priorities towards the security of owning your home is clear.

3 – Financial Security

You’ll hear a variety of opinions about whether it is a sound financial strategy to pay off your home mortgage. “You’re money makes more when invested.” Or “You’ll lose the tax deduction,” are often arguments used against paying off your home. This may be true for some people but it’s really important to look at the actual numbers to see what makes the most sense for your financial scenario. In many cases you might be paying thousands of dollars in interest to the bank just to avoid paying a small amount to the government in taxes. Investments might earn a higher rate of return but you must also calculate the taxes on this income and factor in the risk that mutual funds and stocks may not perform.
Always, always, always seek out advice from financial, tax and mortgage professionals to see what makes the most sense for you.

Key Take Away

Aside from what everyone would have you believe - at the end of the day, you need to ask yourself, “Do I want to pay off my mortgage?” The answer is probably the right one for you!

Photo credit: GoDaddy Royalty Free Web Images

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