Gauging Your Mortgage
What if you had a big medical expense? A great investment opportunity?
It's not such a problem today with home equity lines of credit and relatively easy refinancing, although the money usually costs a little more. I could go on, but a summary will be more helpful. Why you should pay your mortgage off:- Debt-free peace of mind. You sleep better at night not worrying about debt.
- Lifestyle/career options. You want to retire early or have some lifestyle flexibility not otherwise possible with a big mortgage obligation.
- Retirement flexibility. Eliminating the mortgage allows you to check a big one off the retirement-needs list. And it sets you up for a reverse mortgage during retirement.
- You're a cautious investor. Some prefer to keep the mortgage and invest spare cash for higher returns. If you don't think you can consistently beat the 6% implied return -- risk free -- then pay off the mortgage.
- You have other investment capital. If you have plenty of other capital to chase higher returns in real estate, equity or other investments, paying off the mortgage could make sense.
- Other bases aren't covered. Paying off a mortgage early is a bad idea if you haven't taken care of other financial needs, especially retirement plan contributions. Don't starve your 401(k) or forgo a company match just to pay off the mortgage.
- You plan to move or sell. If you're going to sell your home in the next few years, why bother to pay it off? You may need the capital for a down payment on your next home.
- Better investments elsewhere. Money tied up in a home is "dead" money; it really earns no return except the interest you'd save on a mortgage payment.
- You face AMT. AMT knocks out a lot of deductions, including mortgage interest for equity lines and seconds. But your first mortgage used to acquire the home remains deductible even for AMT.
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