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Top 3 Reasons To Not Pay Off Your Mortgage Quickly

07/06/2010

Conventional wisdom says that paying a mortgage off early is a sound financial decision. And in many cases, it is. An early payoff can save thousands of dollars since less interest is paid over the life of the loan. Doing so may mean you'll lose the tax advantage. But that's okay if the amount saved in interest is greater than the amount gained by the tax deduction. Plus, putting more towards principal helps build equity more quickly.

However, paying a mortgage off early isn't always the best option. If you have extra money, here's what you could do with it instead.

3. Invest the money
Nothing can guarantee that investing will provide a better return on your money than you'll get from paying your mortgage off early. Investing money can just as easily result in a loss as it can a gain. In the long run, even after considering this risk, investing extra funds could end up being a smarter financial move than paying your mortgage off early.

Anyone working for a company that offers an employer-matched retirement plan should definitely consider contributing as much money as possible to the plan. The employer-matched money is like getting free money and that is always a better option. Once you reach the contribution limits, you can funnel excess income towards paying down your mortgage balance.

2. Focus on higher-interest debt
If you have higher-interest credit card, auto loan, student loan, personal loan or other debt, it's usually smarter to pay off higher-interest debt first. Remember, mortgages offer tax advantages that generally aren't available with other types of debt. Plus, many mortgages today have low interest rates. While you might save money by not paying as much interest on a six percent mortgage, you'll probably pay more on a credit card charging double-digit interest on the balance.

1. Why pay off your mortgage before you retire?
Several reasons come to mind. First, you'll reduce your expenses. This is especially important if your income at retirement will be fixed. Second, by retirement, the tax advantage likely won't be that great since more of your payment will go towards principal rather than interest.

When it comes to whether it makes sense to pay off your mortgage early, or whether a 15-year mortgage is better than a 30-year, there is no one-size-fits-all answer. Everyone's financial situation and financial goals are different. Getting the advice of a certified financial planner can help you figure out the best way to achieve your financial goals.

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