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Is it always a good idea to pay your mortgage off early?

by MInman from River Edge, New Jersey. Feb 20th 2013 Reply


Dave Metsker (DaveMetsker)
#37 ranked lender in Oregon - 2,317 contributions

A good financial plan is to pay off the highest interest rate debts first, which most often are the credit cards. After the credit cards are paid off, and you make a habit of paying them off in full each month, move on to other debts, such as car loans. Again, pay off any debts whose interest rate is higher than that of your mortgage. During this time, you should establish a savings plan; saving ten per cent of your income is a good target. Now, take the extra money you previously paid on credit cards and other loans, and add it to your regular mortgage payment. See how fast the balance will go down each month!

Feb 20th 2013
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Carlo Sanchez (MortgageLendingPro)
#0 ranked lender in Utah - 1,163 contributions

It is Always best to not be in debt.

Feb 20th 2013
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William J Acres (William_Acres)
#1 ranked lender in Arizona - 8,455 contributions

You can see that there are varying answers.. Financial planners will always say NO!!.. You can borrow for a mortgage at under 4%, and most investments for conservative mutual funds and blue chip stocks will average 8% or more... so you're better off owing for the mortgage and investing your reserves. People tend to think of their home as a sound investment, and unless you've been under a rock for the last 5 years, you can see that a home as an investment can be vulnerable. Think about it this way.. if you pay extra on your mortgage, and you have all this equity, how could you liquidate that equity if you need to.. if you get laid off or lose your job, and are unable to make your payments, your home is subject to foreclosure, no matter how much equity you have.. if you become ill or injured where you can't work for 6 months, you can't just write a check against your home to help pay the bills while you're not working. The only way to get the equity out of your home is to either sell the home, or apply for a loan against it.. If you're not working, or have bad credit, you can't borrow to get the funds you need... so when you look at the home as an investment, you need to understand it's limitations, and home equity is ok, assuming you have other cash assets that are more liquid.. if your contemplating putting all your extra monies into your home to reduce your mortgage, it's probably not a good idea... all this being said, some financial analysis (Suzi Orman for example) will say that even though it's not financially sound to pay off your mortgage, it gives folks a sense of security, and so for some, it's ok.. it really comes down to you.. What are your goals, and lifestyle.. Are you disciplined, how long do you anticipate being in the home.. etc... I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. 480-287-5714 WilliamAcres.com

Feb 20th 2013
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Bert Carpenter (BertCarpenter)
#38 ranked lender in Arizona - 1,815 contributions

NO. You must balance the use of your cash. It is true that you are probably paying the bank more interest than they are paying you, but you tie up cash when you pay off a loan, and it can be much more expensive to re-finance to reclaim some of that cash, should the need arise. Another factor to consider is the rate of return your cash is or could generate if invested in another investment vehicle, such as stock or bonds. However, if you still have strong cash reserves even after paying off your mortgage and the rate of return on your investments is around the same as the rate you are paying the bank, then paying off the mortgage could be a good thing. Interest you don't pay the bank is usually a good thing. Finally, even if it does not make fiscal sense, sometimes just getting rid of the monkey on your back and being able to say you don't have a mortgage payment to make is worth more than the actual investment opportunity of the money. Finally, if paying off the mortgage leaves you cash poor, then you probably shouldn't do it. ~ Bert Carpenter, The LoansA2z team of NOVA Home Loans ~ NMLS 40586 ~ Licensed in California and Arizona ~ www.LoansA2z.com 888-889-9950

Feb 20th 2013
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Scott Singer (ssinger)
#102 ranked lender in New Jersey - 28 contributions

I would say yes it is Minman. While you still get the tax deduction for the interest you are paying, you are still paying interest! With rates as low as they are however it might be wiser to have your money working for you somewhere else but if you have plenty of cash no mortgage is where I want to be!

Feb 20th 2013
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Maryann OBrien (Maryann)
#98 ranked lender in New York - 1 contribution

Not necessarily, it really depends on the individual circumstance as well as property type. Often there are other financial benefit in keeping a mortgage, example would be mortgage interest deduction on 1040's. I would recommend consulting your financial advisor or accountant for guidance.Maryann O'BrienRetail Branch Manager780 Third Avenue, 16th FloorNew York, NY 10017(843)368-7163maryann.obrien@everbank.comhttps://www.abouteverbank.com/retaillending

Feb 20th 2013
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Peter Botros (PeterBotros)
#71 ranked lender in New York - 895 contributions

The answer would depend on your financial situation and what the extra money could be used for. with todays rates in the mid 3's you can invest the cash you would have used to pay your mortgage down and gain a greater return the the interest you are paying on the mortgage. You also have the added benefit of the tax wright off. Call me if you wish to discuss further. Peter Botros 908 933 0253 office 347 231 4444 cell. PBotros@OmegaLoans.net

Feb 20th 2013
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Charlie Sparks (CharlieSparks)
#9 ranked lender in New Mexico - 397 contributions

A simple rule of thumb is... can you invest your money at a higher rate of return than the after-tax rate you are paying? Mortgage money at today's rates is some of the cheapest you can borrow. The mortgage interest deduction reduces the rate even further. I agree with DaveMetsker to pay off higher rate debt first. Another variable is when are you looking to retire? A 50 year old with a 30 year mortgage may want to pay enough additional principal so it is paid by the time they retire.

Feb 20th 2013
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Joe Shamie (Joe Shamie)
#5 ranked lender in New Jersey - 1,412 contributions

It depends on what the extra money you would be using to pay off the loan early could do for you elsewhere.

Feb 20th 2013
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Joe Metzler (JoeMetzler)
#1 ranked lender in Minnesota - 3,791 contributions

Being debt free is a great place to be... The answer to that question really needs to be make with a financial planner.

Feb 20th 2013
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Robert Le (robert_le)
#620 ranked lender in California - 36 contributions

Hi Minman,My friends pay off their house. They have nothing to worry about when they lost their job. If you keep on using your house as piggy bank and move the credit, auto loan etc... to it and if you lost your job, then you can stop paying your credit cards. Worst case, your credit score is lower.

Feb 20th 2013
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Sharon Duffy (sduffy)
#72 ranked lender in Pennsylvania - 595 contributions

I see you have a variety of answers here and they are all right. If you think about what you pay in interest over the life of the loan, I always suggest homeowners pay their mortgage down. It does add up to a substantial savings and as you reach retirement, if you did not plan properly, you're housing expense will be much less if your mortgage is paid off early. You will then have equity in your home to help you make financial decisions down the road. Should have any questions please feel free to contact me: 732 606 6264Sharon7th Level MortgageNew Jersey

Feb 20th 2013
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Barb Lanis (BarbLanis)
#71 ranked lender in Illinois - 663 contributions

Charlie and William answered your question just right. Besides mortgage interest being as close to free as you can get, the only other considerations would be your longer term plans as it relates to necessary cash flow and planning for unforeseen expenses or emergency funds. In the "old days," it was considered a huge accomplishment to payoff your mortgage. Caution is the rule of thumb now. If you pay it off and have no significant savings as a result, are you better off? Probably not.

Feb 20th 2013
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Peter Savino (855411LEND)
#101 ranked lender in New Jersey - 332 contributions

To answer this correctly, we would need to know what you job is, and what your total finacial picture looks like. There are jobs where the home owner needs the deductions to save money on their IRS tax return. The most correct answer would be to ask a certified accountant, they will know what is best for you. On a personal note, if your job is very secure I would pay down your mortgage as fast as possable. Peace of mind has alot to be said for.

Feb 20th 2013
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KIYOSHI INUI (Kiyoshi)
#2 ranked lender in California - 108 contributions

It depends on the individual, and what you're doing with your money. There's good debt & bad. The difference between good debt and bad debt is largely down to what you are using the debt for. Good debt is generally anything that will help your wealth to grow. This normally means things that will increase in value but there are exceptions. Bad debt on the other hand is debt where you are borrowing money to buy things that are unlikely to retain their value. The classic example would be like credit card debt or a car loan.

Feb 20th 2013
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