Paying mortgage off early? Is it really the best thing to do.. (loan, loan)
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I have been in my home for 2.5 years and have done double payments since month one. However recently I've heard that this could actually not be the smartest thing to do. I personally don't understand how its bad to pay off a mortgage early. Is it just because I can't get a write off after its paid off ? Why or how would it be a bad thing to do? I prefer to have it paid off before I turn 35(A goal of mine) and plus I hate paying interest on anything. I personally think I'm doing the right thing. Could someone shed some light on the subject, anything big I'm missing?
I'm not sure how everyone else is going to chime in, but when a majority of your mortgage payment is going to interest (for the first few years), each and every single time you make a payment, it would be stupid NOT to pay it off early. Go buy yourself another house with the interest you'll be saving!
My current mortgage payment is $540, and only $80 of it goes to principal. It eats up my insides to look at my statements!
You save more money if you pay it off early... I am doing the same thing, double payments (by making a regular payment every 2 weeks)... I think I will save over $100k in interest alone and reduce the term from 30 years to like half that... However, I may cut back a little, the Hyundai Equus is too tempting...
I have been in my home for 2.5 years and have done double payments since month one. However recently I've heard that this could actually not be the smartest thing to do. I personally don't understand how its bad to pay off a mortgage early. Is it just because I can't get a write off after its paid off ? Why or how would it be a bad thing to do? I prefer to have it paid off before I turn 35(A goal of mine) and plus I hate paying interest on anything. I personally think I'm doing the right thing. Could someone shed some light on the subject, anything big I'm missing?
Generally, I think it's good to get rid of debt at the earliest reasonable date. But it's really a question of balance.
Do you have enough liquid cash available for an emergency? If not, then you shouldn't be putting so much extra into an illiquid asset.
There's also the question of alternate uses for the money. At your age, you can afford to think long-term about your investments, so even though returns are pretty bad right now, it could be foolish to eschew other investing to over-accelerate your mortgage repayment if you can reasonably expect to get higher long-term returns from making other investments.
OTOH, once you get the loan paid off early, you'll have a ton of extra money to invest that would have otherwise gone into a house payment. And doing what you're doing will save a ton of interest, though that is offset by the lack of investment income/appreciation from investments you're not making because of your extra mortgage payments.
I wouldn't worry about the tax write-off. Do you really want to pay $10 in interest, just so you can get $3 back from the government? I don't think it ever pays to have a higher loan than necessary just to get the tax writeoff.
It sounds as if you're in a strong position. I'm very happy for you. The important thing, IMO is that you're saving money. The best mix of debt reduction/additional investment is up to you, but it's a lot better than borrowing more and not saving.
You save more money if you pay it off early... I am doing the same thing, double payments (by making a regular payment every 2 weeks)... I think I will save over $100k in interest alone and reduce the term from 30 years to like half that... However, I may cut back a little, the Hyundai Equus is too tempting...
Haha, Same here! I've been craving a new car too for about a year and that's one reason I dump my money into untouchable CD's and into the house. I'm going to drive my car until it gives up. It's almost 10 years old , runs great and its even still shiny. Plus the gas mileage I get is hard to give up at about 32-35mpg. (Ford focus)
I think you are doing the right thing. I'm a Dave Ramsey follower and his arguments for paying off a mortgage quickly make sense. If you paid the mortgage on schedule, you'll likely pay the principal twice over. Also, when you receive your tax deduction it isn't a dollar for dollar deduction as compared to the interest you pay. So you are paying many thousands of dollars to the bank so you can reduce your takes by a little bit.
"I wouldn't worry about the tax write-off. Do you really want to pay $10 in interest, just so you can get $3 back from the government? I don't think it ever pays to have a higher loan than necessary just to get the tax writeoff."
This is exactly what I brought up when I was told it was bad to pay off my mortgage early. Like you wrote - Why would I want $3 back when I can save triple that after its all said and done. I just kept on being told to use the money on other things and enjoy getting money back from the government for the interest I pay. This coming from the couple who bought a house that they could barely afford on two incomes....
its amazing how folks dont realize that tax deduction isnt a bonus. they are paying in maybe 4 extra dollars above the price of the house to get 1 dollar back.
"I wouldn't worry about the tax write-off. Do you really want to pay $10 in interest, just so you can get $3 back from the government? I don't think it ever pays to have a higher loan than necessary just to get the tax writeoff."
This is exactly what I brought up when I was told it was bad to pay off my mortgage early. Like you wrote - Why would I want $3 back when I can save triple that after its all said and done. I just kept on being told to use the money on other things and enjoy getting money back from the government for the interest I pay. This coming from the couple who bought a house that they could barely afford on two incomes....
People come up with the most ridiculous justifications to do what they want to do. I've actually had people tell me I need a more expensive house so I can get a bigger tax deduction. That type of thinking is just twisted, especially considering that I don't even get the full benefit of my deductions because (a) they're limited due to my income; and (b) some years, I fall into alt min tax.
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