So, why should I pay down my mortgage early?
I'm sure that there are many financial advisors that would ask you the same question. Try asking yourself the following question: why are so many people so anxious for me to take on and hold more debt? I've found that people who want you to carry debt fall into two categories:
So, let me lay down a few ideas for you to think about.
- Those who want to convince you that your house is a "get rich quick" investment vehicle. Their contention is that your house will appreciate and make you money over and above the interest you're paying (do the math). If you agree with this philosophy, this site is not for you.
- Those who make money off your debt. Think of this as the jeweler who tells a young man that he should spend 3 months pay on a diamond engagement ring or the realtor that tells you how much home you can afford. Both the jeweler and realtor have a direct financial interest in how much money you spend. So does your mortgage holder, except that he also benefits from how long you stay in debt to him.
- You should approach all advice, including this Web site, with a healthy dose of skepticism. You never know what motivations are behind any advice you get. Use your own best judgement to make sure any advice is right got you.
- Carrying debt is not good for your finances. Regardless of what the experts say, anytime you owe, you pay someone for the privilege. This doesn't mean that all debt is bad, just continually being in debt without a specific reason.
- Paying interest is not a good thing. Every penny you pay in interest goes into someone else's pocket and not toward paying off your debt. Interest is the price of having the debt. If you get out of debt, you keep more money for yourself.
- That seemingly wonderful tax break for mortgage interest may help, but it's really not such a great deal. If you get a $200 per month tax break on mortgage interest, it's only because you paid the mortgage holder $600-$800 in interest per month. Since that interest goes into the mortgage holders pocket, you gave several hundred dollars of your money to someone else. I'll take not paying the interest any day! If you get out of debt (using the numbers above), the $200 per month tax break goes away, but you get to keep the net $400-600 per month of avoided payments less tax. That's a great tradeoff in anybody's book (except for the mortgage holder, who's no longer on your gravy train).
Copyright 2001-2009, Tim Sharpe. You are free to use this information for personal, non-commerical use without restriction. All rights reserved for commerical, organizational, or government use. Questions or comments to firstname.lastname@example.org. Flames to /dev/nul.