The jury is still out on whether it’s best to pay off a mortgage early, saving a tremendous amount in interest payments, or making the scheduled payments and investing extra cash in investments instead. This article will highlight the benefits of keeping that mortgage payment and investing your extra money elsewhere.
One of the advantages of making your regularly scheduled mortgage payments is the tax deduction you get to take on the interest paid on your mortgage. This tax deduction makes your mortgage – and your home equity line of credit – an appealingly low cost borrowing vehicle. If you are near the beginning of your repayment schedule, you will miss out on a huge tax deduction that can help offset income taxes if you pay off your mortgage too quickly.
Many investments – including 401Ks – can bring a much higher return than the money saved paying interest on a home mortgage. Experts recommend paying extra into your 401K and IRAs before contributing extra money towards your mortgage. The tax benefits on 401Ks and IRAs can be very beneficial.
Having a mortgage is one of the best things you can do to build a good credit rating. A long-term installment loan in good standing is the foundation of a good credit rating. This form of credit commands respect more than any other form of credit, meaning you’ll be offered better interest rates and credit cards with better rates and lower fees. All those lower insurance premiums, better credit opportunities, and lower interest rates add up over the years.
Another argument towards not paying your mortgage off early, but rather investing elsewhere or saving extra money in cash reserves, acknowledges the fact that paying off your mortgage early does not exempt you from payments should you become unemployed or disabled. While your mortgage has been paid down some, the monthly payments will still be due each month, and that money will not be available for you to apply to the currently due payments. If you’d put that extra cash in a savings account or invested it, you could now access that money and continue to make your mortgage payments on time as you looked for a new job or rehabilitated.
In order to make this decision, you’ll need to do a little calculating. A couple online calculators that may help you decide if you’d benefit more from keeping your mortgage or paying it off early are the following:
Early Pay Off Calculator http://www.loanshoppers.net/payoff_calc.htm
Interest Calculator http://www.loanshoppers.net/interest_only_calc.htm
With these calculations, you can check your investments and see which has paid off better and more reliably. You’ll want to calculate fees and taxes, as well as tax benefits, and you weigh the options.
Whatever you decide, take a moment to congratulate yourself for planning your financial future carefully. Investing in your finances is always a wise decision.
