There is much controversy about whether or not to make extra payments on your mortgage in order to pay it off early. As usual, I don’t have any hard and fast rules, but there are questions I’d like addressed before making this decision.
First, is this the forever house or the 5-year house? If you plan to only be in a house a short time, don’t pour a bunch of money into paying off a loan that will never be paid off. If you have extra money, set it aside somewhere liquid to help pay for the next down payment and moving expenses while your current house is on the market.
If, however, you plan to be in your house for a long time, or well into retirement, it makes sense to try to be mortgage-free. The lower your fixed costs in retirement, the happier you and your financial planner will be.
Many people are loath to give up their beloved mortgage interest tax deduction. Why?? Even my accountant didn’t carry a mortgage. If you pay $20,000 per year in mortgage interest to get $6,600 back from the IRS, you are still $13,400 in the hole on bank fees. I’d rather keep the thirteen grand and pay a little more than usual in taxes.
So, paying off a mortgage early is not just a financial decision, it’s also a lifestyle question. If the tri-level house built into a mountain side is not going to accommodate you in your later years, don’t stress about paying it off. Work toward having the right combination of home equity and liquid savings to purchase the long-term home free and clear.
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