- Home >> Lifestyle: Dollar
Savers:
Should You Pay Off Your Mortgage?
-
- Should
You Pay Off Your Mortgage?
- By Roselind
Hejl
-
About five years ago we worked
with some clients coming to Austin from California. I was a little
shocked by their choice of mortgage - a 100%, interest-only loan.
At the risk of sounding a little backwater, I asked them, "Why
would you not want to pay off your loan?" Their answer was,
"We both have MBA's." I assumed that meant that they
were better informed than I. And, I am sure that was true. But,
I still wonder (for non-MBA's), is it better to pay off your
mortgage?
It is true that a home mortgage
loan is still the best loan program available. It often referred
to as "good debt." But, does leveraging this loan to
put cash into other investments make sense?
Certainly, the deflation in
housing prices in many parts of the country makes clear that
there is some risk in this strategy. As the real estate market
heated up during the past few years, the expectation was that
values would increase quickly, and buyers would be covered, if
they needed to sell. If people could put zero down to buy a real
estate investment, and use their cash for other things, who would
not want to play? If folks could expect 10% - 30% appreciation
and get 6% interest rates, who would turn down the opportunity?
A subtle change took place in how we bought homes. Home ownership
became speculative. In many cases, buyers did not realize that
speculation has a risk factor. No pain, no gain, as they say.
Regardless of the state of
the real estate market, most of the expert advice that I have
read suggests that, for most people, it is safer to pay off your
mortgage as quickly as possible. The truth is, mortgage debt
is a long term burden. There is really no good long term burden.
Of course mortgage loans do not have the high rates of credit
cards or payday loans. And, the federal government has favored
mortgages by making the interest deductible. Nevertheless, a
15 year mortgage is worth considering. It has a lower interest
rate, and pays off fast.
No matter how you look at it,
debt free is a nice place to be. First of all, when you move
into retirement, you will be in a much better position if you
are debt free. You will be able to exercise more control over
your savings. Second, when you have a fixed income, you will
have less ability to make money to contribute toward paying down
debts. And, third, most of us are not able to control the success
of our other investments. The stock market has its ups and downs.
But, paying down a mortgage offers a clear and predictable return.
Of course, if you have an investment
that you are sure will offer a better rate than you are saving
by paying off your mortgage, then that might be the best choice
for you. Or, if you have high rate credit card loans, then these
should take precedence over paying off your mortgage. Homeowners
should look at their whole situation before making a decision
to work on paying down their mortgage.
But for most of us non-MBA's,
the security and peace of mind that comes from being debt free
is well worth the effort. _______________________________________
Roselind Hejl is a Realtor
with Coldwell Banker United in Austin, Texas. Her website - Austin
Texas Real Estate - http://www.weloveaustin.com
- offers homes for sale, market trends, buyer and seller guides.
Let Roselind help you make your move to Austin, Texas.
Austin Real Estate Guide
______________________________________
ARTICLE POSTED
March 24, 2008
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