Mortgage is a kind of debt. Just like other debts, you face a dilemma whether to shrug off the burden of your mortgage payment earlier or not. Two primary factors are of importance in this case and these are interest rate on mortgage debt and amount of estimated return from an investment.
These days, financial institutions clamor about offering low interest on mortgage loans. In such financial environment, you may be tempted to take out a low-interest loan in times of heavy needs. However, I will suggest that you should consider this option as the last resort. As per experts’ view, it is fine to continue paying for your mortgage loan until you hung up you boot.
Why? Here are 4 explanations for you:
High interest on debt:
Long-term mortgage comes with low interest rate – as low as below 5%. That being the case, is there any solid reason to make extra payment, especially if you have other high-interest loans like student or credit card loans?
Tax break on mortgage payment:
Are you a high tax payer? Do you have a mortgage with high payment? If both are YES in your case, it will be a sensible idea to keep your mortgage debt instead of clearing dues earlier as tax break option is awaiting your grab. However, never believe in promise of ‘write off’.
Mortgage loan payers are often hoodwinked by promise of deduction but what they often ignore is such deduction is available only once. If you want to experience a tax benefit, the deduction must be in excess of this figure. Additional tax benefit will not be available if standard deduction is more than your mortgage payment.
Max out on retirement saving:
When you spend a larger sum towards paying off your mortgage payment, it becomes a stumbling block on building up nest egg for your retirement. Such financial decision is fine if you have already saved a fortune for your sunset years but if not, it will be a disaster after taking retirement.
Even a gap of $100 dollar in your monthly mortgage payment could make a big difference. It is wise to spread the payment over a long time so that you don’t feel the burden of mortgage loan, can meet other payments and get to save a goodly sum for retirement.
Tapping into asset:
Saving for retirement is never meant only to meet expenses for basic necessities for consumption. Remember that medical expenses shoot up once you get older. Retirees are often required to have a higher income in order to deal with high medical expenses as well as other unpredictable financial events. If you run out of your funds to meet mortgage payment before calling it a day, you may have to borrow a reverse mortgage loan or even sell your property.
Some people think that they will be better off if they pay off their mortgage earlier, at least before retirement. Unfortunately, such decision often affects their retirement plan and leaves them with very little after retiring from job. If you don’t want your twilight saga to be a disastrous one, don’t go for the option of ‘early payment’.
I don’t believe a 15 year note is long term, considering you can pay it off in 7 with a little extra effort each year.
I financed $65,000 on a 15 yr. for 4.25%, and I pay $486.00 a month. Credit Unions are the best in offerings, I believe. Paying off my house earlier will give me a ton of equity if an emergency happens and I need a large sum right away. My house was appraised as $106,000 today. I purchased in 2013. Worry about short term notes – more than paying it off is the best bet to have the option to do so later.
You are so true, Evie.
I can pay off a 60k mortgage in less than a year. Obviously, is not the same a $100k mortgage vs a 500k and so on. So, all depends on how much you make. I had a mortgage that was 180k, I wanted to pay it off on 3 to 5 years. Then I moved to another house before I pay it off. Now my mortgage is 330k thinking more like 10 years now, since I already spend over 100k in remodeling.
again it all depends on how much you make.
Thanks Andy, for the sharing your experience with us.