Is Early Mortgage Payoff Wise?

19 May, 2009  |  Written by  |  under Investing

This week I came across an article on another personal finance blog that answers a question that has crossed my mind many times, long before we started Spending It.

The question: Is it worthwhile to work to pay off your mortgage early, or are there better ways to spend that money.

The blog: Five Cent Nickel

The gist: Five Cent Nickel provides a good list of both advantages and disadvantages of paying off a mortgage early.  The “pros” of early mortgage payoff seem to consist mainly of the peace of mind in owning your home outright and saving the interest that you would otherwise be paying on your mortgage.  On the “cons” side, the fact that your mortgage is probably the cheapest interest rate that you have is a factor, and also some thoughts on the likely value of the dollar in the future.  That’s a very brief summary, so you should check out the rest of the article here:  Pay Off Mortgage Early?  Or Invest?

My thoughts: After reading the article and giving the subject a little more thought, I decided that I probably would rather not knock myself out trying to pay off my mortgage early.  My mortgage is at a good interest rate, and the fact that the interest is tax deductible is nice also.  So, I would probably rather use any extra money that I have to: (1) pay off credit cards; (2) invest my money in an investment that is likely to earn more than the rate of interest on my mortgage; and/or (3) use that extra money to live a little and take an extra trip with my wife or the whole family.

How about you?  Would paying off your mortgage early give you great peace of mind, or would you get a better Quality of Life Return On Investment spending it on something else?

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4 Responses so far | Have Your Say!

  1. Miranda  |  May 20th, 2009 at 8:15 am #

    Actually, with the low interest rates, we could refinance to a 15 year mortgage and only pay $100 more a month. It’s a little different approach to paying off the mortgage early. It would help us build equity faster, save tens of thousands of dollars in interest, and not interfere with our current budget, investing plans or anything else in our finances. We’re going to see what we can do.

    Miranda - Gravatar
  2. Michael Harr @ Wealth...Uncomplicated  |  May 20th, 2009 at 9:54 am #

    Paying off your mortgage early is the best route from a net return and risk standpoint as I’ve demonstrated in the past. However, it’s only the best route if (1) you have no other debt, (2) have a solid emergency fund, (3) are maxing out tax favored savings opportunities like 401k, Roth, etc., and (4) have no desire to use that money now for quality of life rather than later. If all four of those criteria aren’t met, then keeping the minimum payment on the mortgage is just fine. Besides, who wouldn’t want to spend more time with the wife and kids…I know mine are a lot of fun:)

    Michael Harr @ Wealth…Uncomplicated - Gravatar
  3. SpendIt  |  May 20th, 2009 at 10:20 am #

    Thanks Michael, appreciate your analysis — and enjoyed your detailed post on the topic at:
    Tax Myth: Keep Your Mortgage, Invest the Tax Savings
    Yes, it’s item (4) that gets me — after doing everything else I’m supposed to, it seems like I don’t have enough left over to both have a life and pay off my mortgage early. Maybe in the future that will change.

    SpendIt - Gravatar
  4. SpendIt  |  May 20th, 2009 at 10:22 am #

    Thanks Miranda! If I could switch to 15 years and only pay $100 more a month, that would definitely be worth it!

    SpendIt - Gravatar

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