Paying off Mortgage Early

You might have come across the statement from your financial adviser or whoever, that paying off mortgage is not a wise thing to do because of IRS tax return deduction which in turns lowers your mortgage rate (effective rate). Also, if you invest the additional money which you apply towards principal payment in stock/bond market you can get better returns. I have even heard people saying that paying off your mortgage is liking putting money under your mattress.

I am not disputing the above facts but I still believe that it is wise to pay off your mortgage sooner for 2 reasons.

- Employment Instability
Layoffs are becoming a way of life. It is not uncommon to hear that such and such company is cutting costs and planning to layoff its employees. With offshoring on an increasing trend, the probability that an individual will have to face atleast one layoff in her career is much higher than what it has been in the past. In such a situation keeping ends together really becomes an issue as most of us do not have 6 months of emergency cash available in our checking accounts. Missing mortgage payments may result in bank’s foreclosing the house (sub prime crisis aggravated this situation) and can severely impact one’s credit report. Agreed that the person will not be out of job forever but wouldn’t it be less stressful if you had paid off or at least nearer to completion to “owing” your biggest financial asset.

- Rental Property
Paying off your home mortgage will enable you to buy a rental property. Not only you will be owner of your home but someone else will help you buy an investment property. By the time you are about to retire, chances are the rental property would also be paid off. This will result in a steady stream of rental income. Agreed that one can buy a rental property when she is paying mortgage on her primary residence, but having paid off one’s primary residence will leave her with more cash in hand to invest, with peace of mind that even if things go wrong she has her house to lean on.

Needless to say I will be putting my rebate check from the latest economic stimulus package and income tax refund towards my primary residence mortgage.

As always your comments and suggestions are most welcome.

This entry was posted on 11 Feb 2008 at 13:42 and is filed under Personal Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.