Don't Payoff Your Mortgage Early . . .
There is a better way to get ahead on it. I spoke to a mortgage broker the other day and he had the foresight to see the problems with paying off the mortgage early. Here is how he saw it-- Paying off the mortgage early:
- Removes a major tax break in the form of mortgage interest deduction when you need it most-- your peak earnings years
- Turns liquid cash into illiquid home equity that is difficult to access
- Keeps you from investing money in liquid assets that might provide the flexibility when times are tough
If you have the means, why not build a laddered bond portfolio to pay the mortgage. A laddered bond portfolio tries to match bond maturities and interest payments to the mortgage payments. The advantages are:
- You get the mortgage interest tax deduction
- You get the investment returns
- You have an asset that can be liquidated if the need arises
If you don't want the more complex laddered portfolio, take the extra couple of hundred and invest it. Build extra assets that you can tap now or in the future. The last thing you want is to have all your money in your house . . . see my post, Is Your Nest Egg Your House? Might Be a Bad Move . . .
Posted by DDFD at 11/20/2008 8:48 PM 
Categories: Personal Finance, TAXES, Self Sufficiency, Frugality
Tags: Personal Finance Self Sufficiency Taxes Frugal Frugality
Categories: Personal Finance, TAXES, Self Sufficiency, Frugality
Tags: Personal Finance Self Sufficiency Taxes Frugal Frugality
Interesting!
I accept the liquid cash argument. Not so sure about the tax deduction--I'm always leery of prolonging debt for tax advantages. It'd take real individual study to decide if it's right or not.
As for delaying paying off a mortgage: to me, until the house is wholly "yours," there's always a chance it might be taken away some way, some how.
But, my opinion is bound to be different from most people's. I'm glad to have my mortgage paid off and done with! If it weren't, the bond ladder would be an excellent idea! We use the CD ladder model to manage our investments. It'd work well for paying off any debt over time, I think.
http://www.akzeigers.com
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Not paying off your Mortgage if you are financially able to do so, is ignorant. 1) In order to get the "tax advantage", you have to pay interest. The tax advantage is typically 25% of the interest you paid. So why pay, for example, pay 10,000 dollars in interest to get a 2500 dollar tax right off...you come out 7500 behind... You could use the same flawed logic for giving to charity, or anything other tax advantage.... Getting advice from a mortgage broker about paying off your mortgage is like asking a prostitute if she loves you...uh, of course she does... Those that make the "tax advantage" argument always conveniently leave out that in order to get the tax write off, you have to PAY approx. three or four times that amount in interest... Why not give 1000 dollars to your church this Sunday, so you can get a 250 dollar write off...Go for it dude... 2) No one suggests paying off your house at the expense at not having some liquid savings.... another stupid point.. always have some liquid "rainy day cash", the amount depends on your income level and lifestyle 3) Investing is long term, and shouldn't be accessed when times are tough... Emergency Cash should be used "when times are tough"...
Pay off your mortgage, and sleep well...
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