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Why You Shouldn't Pay Off Your Mortgage Early

Lots of people dream of making that final payment on their mortgage and owning their home free and clear, but is this really such a financially savvy thing to do? For years the only acceptable goal was to aim for paying down your mortgage, so naturally, when people hear that it may be better to let the mortgage run its course, suspicions abound. The following points can help to highlight why it may be better to keep your extra cash instead of throwing it all into getting rid of your mortgage debt.

Mortgage Loans are Cheap Loans

It is a fact that a mortgage loan is one of the cheapest, if not the cheapest loan the average person can qualify to get. It therefore makes sense to take advantage of that loan for the longest possible time. Chances are than if you start putting all your excess money into your mortgage you may need to take another consumer loan or education loan to finance your other needs. This means paying money into a low interest loan and then borrowing at a higher rate of interest.

Holding on to a Mortgage Keeps You Liquid

When you keep your money in the bank or in an investment account you retain the liquidity that cash has to offer. If on the other hand, you tend to put your excess cash directly into your mortgage you won’t have access to it if you need to get something done on short notice. You may even come across an investment with the potential for astronomical returns but you won’t be able to invest because your money is tied up in your house.

Mortgage Interest is Tax Deductible

Another reason to let your mortgage run its course is to take advantage of the tax savings. When you have a mortgage you can claim a deduction on your income tax return. What you do with your return is up to you, but you would not get it if your loan was fully paid off.

You May Qualify for Mortgage Interest Assistance

Some employers offer mortgage interest assistance as part of their incentive package, but of course you need to have a mortgage to qualify. At the start of every year you collect a statement of your estimated interest costs for the period and present this to your employer who then calculates your benefit based on the company’s policy and the amount.

While some people will always opt for the feeling of not owing the bank on the house, there are other factors to consider when deciding if to pay off your mortgage or not.

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scheng1 wrote on February 21, 2015, 8:39 AM

Not really true. Some people are not good at investing, so when they have money, they will get into bad debt.

Kungfu123 wrote on February 21, 2015, 8:52 AM

I have to pay my mortgage now. After reading you article, I won't feel so nervous to pay it off early.

Soonerdad3 wrote on February 21, 2015, 12:11 PM

While things you mention here do make sense for some people and depending on circumstance would be a great idea. However, with a mortgage being the largest single expense most homeowners have getting rid of that monthly payment will make it easier to absorb an unexpected need for cash. In my case we don't have an interest rate on our mortgage, so paying it off early or waiting makes zero difference as far as tax advantage goes.

AliCanary wrote on February 21, 2015, 12:22 PM

I agree that equity debt is the last TYPE of debt that you should pay (I have no credit card debt, no car payments, no student loans or consumer accounts, just mortgages), but having NO debt keeps you pretty liquid, too. Even though I currently have only mortgage debt remaining, it's still debt, and I still aim to pay it off.

GemstonePink wrote on February 21, 2015, 12:35 PM

Well, this is very good news for my husband and me. We are on house and no way will our mortgage be paid off anytime soon.

nataliajones wrote on February 23, 2015, 12:40 PM

All the points in this article are very subjective so they can't be applied in a blanket manner, so I agree with you in your case and for many others paying off a mortgage is better than keeping it, but it just isn't always better which is what people assume! Thanks for commenting!

nataliajones wrote on February 23, 2015, 12:43 PM

True... but the angle I was looking at is not necessarily the smaller instalments you pay per month but if you had a large lump sum to use to either pay off debt or invest in something else or hold in cash, in that case keeping the mortgage makes you more liquid. Thanks for the comment! Keep them coming!

Soonerdad3 wrote on February 23, 2015, 4:24 PM

You are right, there are plenty of situations that your advice would be very valid. I hope you know that I was not trying to argue or diminish the value of your article.