Should You Pay Off Your Mortgage?
Most people make minimum payments on their mortgages over the life of their loans and carry mortgages for 30 years or all their lives. A lot of people think mortgages debt is normal and something that they expect to have until they die. It never crossed their minds that they could or should pay it off. That’s how it was for me, before I met (figuratively) Dave Ramsey.
Do you pay off your mortgage or don’t you? I would say, Yes. But when? It depends on what your goals and priorities are. For some of you, it will be a simple decision and others may benefit from a little more education on the matter, and still others may benefit from a discussion with a certified financial professional. Generally, though there are at least three options you can chose.
You could aggressively pay off your home as soon as possible.
Pro: Extra money towards your mortgage principal results in less interest paid over the lifetime of your loan. That’s why you hear talk about paying one extra mortgage payment a year and how that it can save you tens of thousands. Essentially, that’s what happens when you elect a bi-weekly repayment plan. Instead of 12 payments a year, you make 13. You can make an extra payment around tax time or at the end of the calendar year. You can pay an extra $50, $100, or more each month. You can do any of those things and still throw extra income you have left over at the end of the month.
You could hold off on paying off your home, to pay off other debt first.
Pro: The extra money that you would be throwing towards mortgage principal could be paying off credit cards, personal loans, student loans, and other consumer debt that carry higher interest rates. By tackling the higher interest rate debt, you are paying less overall interest.
You could hold off on paying off your home to invest instead.
Pro: The extra money that you
would be throwing towards mortgage principal could be growing your savings through investments that earn a greater return. That is, if the interest gained from investing is higher than the interest paid out toward your mortgage.
Common Ground
The cons are, by opting for one of these strategies, you opt out of maximizing your resources with the others. Each of us, will have our own reasons for going with the strategy of our choice, but there’s something we all have in common: if we keep living, we will retire one day.
For most people that means a drop in monthly income. In my experience working for the government, I have heard too many people ask how they are supposed to make ends meet when their sole source of retirement income is Social Security retirement benefits. At about $1200 a month (rough average) people can’t afford to enter retirement with a mortgage, or to wait until retirement to finally decide to pay off their homes. Did you know people have actually lost their homes in retirement? How sad to have invested so many years and over a hundred thousand dollars and to lose your home because you can no longer afford the payments. There are programs that may help, but sadly, losing a family home still happens.
At some point, you’ll want to pay off your home. Make your decisions now, in light of how far you have before you expect to retire.
Conclusion
Each of these options have pros associated with them. And each has likely served many people well. Whatever decision you make, it will be to your advantage to enter retirement with as little debt as possible, and as much savings as possible. That means developing a plan now. You may not know as much as you want to know. You certainly know there are no guarantees as to what the future holds. But don’t let that stop you from making the most well-informed decisions you can.
Tune in for more on mortgages. If you’ve found this information helpful, please share it.
