Elementary math shows you are money ahead by paying off your mortgage. ONLY AFTER:
1. All other debt is paid off first(cars, credit cards, consumer loans, etc.)
2. You have 3-6 months of EXPENSES saved in an emergency fund.
3. You are investing at least 10% of you income into a 401K or Roth.
Steps 1, 2, & 3 have to be done one at a time and completed in that order. Don't start 2 until 1 is done....
Here is the math: For EXAMPLE
Let's say you have mortgage and are paying $10,000 per year in interest on that loan.
Assume you are in the 25% income tax bracket.
You would be able to write off $2,500 or 25% of the $10,000 you paid in interest on you mortgage.
So, what you are doing is paying $10,000 to the bank so you can get $2,500 tax break at the end of the year.
For those of you who think this is a good deal, I'd be happy to take $10,000 of your money and then give you back $2,500.
Bottom line, pay off your outstanding debts (and don't accumulate more).
Save 3-6 months of your household expenses in a rainy day fund.
Invest 10% of your income in either a 401K/457/403 Roth etc.
And then pay off that damn mortgage! Think of the money you would have each month if you had no car loans, credit cards, or a house payment....
Mike
of TX
@
Nov 24, 2009 11:24:58 AM
No brainer!
Paying off your home is the right thing to do. Do the math! You’ll find that if you pay taxes rather than paying interest, you are way money ahead. Also, if the money is in your house ( paid in full) instead of in the market and the market crashes, guess what you still have your home. The reverse of the aforementioned would be you’ll still have a mortgage and your money will still be depleted from a market downturn. I’m not implying not to invest, I do! What I am saying is invest what you can afford to lose. The banks have the population brain washed when it comes to paying off you home plain and simple. Remember they make money on the interest. Investors side with the banks too because they make money when you invest. Financial freedom is exactly that, freedom!
Kent B.
of CA
@
Jul 24, 2009 19:16:33 PM
Paying off a mortage
What is the advantage of paying off a $35,000 when you are 72?
Janet DePasqual
of FL
@
Jul 16, 2009 06:38:36 AM
Pay it off
The only thing I can think of preventing someone to pay off $30000 mortgage is that you won't have any rainy day money left after that. Otherwise, pay it off. You cannot get any significant tax break from the interest anyway.
harry
of CA
@
Jun 24, 2009 18:18:06 PM
Still Confused
Please HELP!
I'm one of the Americans that did it right. Pay my taxes, put my money in a 401(K), save before indulge etc. I have the ability to payoff the mortgage on my co-op without going into my 401(k) and without hurting my savings account. The people that I've spoken to say don't pay off the mortgage because I already don't get that much of a tax break.
Here are the numbers:
remaining on apt. mortgage - 85K
monthly payment - $577
terms - 30 yr. @ 6.25%
savings - 125K
I'd like to pay it off but am still conflicted.
TR ROSS
of NJ
@
Apr 12, 2009 16:16:40 PM
Update the June 2008 article?
I'd like for author Emily Brandon (and USN&WR) to re-interview the Nancy and Claude Jones to see if they have different view about the wisdom of paying off the mortgage in view of what has happened in the past four months. Is Claude still enjoying seeing how his investment account is doing?
CB
of TX
@
Jan 27, 2009 02:15:35 AM
Pay off the mortage now?
After what happened today and what is going to follow, is there any good reason NOT to pay off a $30,000 mortgage that we can afford to do?...thanks
Tom McDonald
of FL
@
Sep 29, 2008 20:25:35 PM
I am 59 years old with a home mortgage. At age 62, could I apply for a REVERSE MORTGAGE based on my financial statement? I refinanced in 2004, and my balance now is $104,000. What conditions must I meet?
steve dean
of NH
@
Aug 07, 2008 07:21:21 AM
Investing creates more taxable income also
If you pay off your mortgage sooner it is true you may have lower tax deductions from less mortgage interest paid, yet you will save all the mortgage interest paid.
HOWEVER, if you instead invest your money elsewhere, you will have higher taxable income due to the investment interest income at some stage. And you will have the uncertainty of the market with most investments.
Lower tax deductions has the same effect as higher taxable income, so what difference does it make? But, paying off the mortgage sooner provides more security.
David
of WA
@
Jul 25, 2008 02:45:53 AM
Pay it OFF!
Oh, what a feeling is right! What you don't own, owns you! Look at paying interest, any interest, as a TAX! Look at interest payments as making the other guy rich and you dependent on making payments. When the house is paid off, you can invest in the market to your hearts content.
Mike of TX @ Nov 24, 2009 11:24:58 AM
Kent B. of CA @ Jul 24, 2009 19:16:33 PM
Janet DePasqual of FL @ Jul 16, 2009 06:38:36 AM
harry of CA @ Jun 24, 2009 18:18:06 PM
TR ROSS of NJ @ Apr 12, 2009 16:16:40 PM
CB of TX @ Jan 27, 2009 02:15:35 AM
Tom McDonald of FL @ Sep 29, 2008 20:25:35 PM
steve dean of NH @ Aug 07, 2008 07:21:21 AM
David of WA @ Jul 25, 2008 02:45:53 AM
Carma of NE @ Jul 16, 2008 13:42:05 PM
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