Why you might want to keep your mortgage debt
Why You Shouldn't Pay Off Your Mortgage Early
by Paige Estigarribia
How Mortgage Prepayments Work
Managing Your Mortgage
Compare Mortgage Rates
There's a lot of advice regarding paying off your mortgage early, but have you ever given some thought to the benefits of not paying off your mortgage early? To answer some of our questions about paying off your mortgage, we reached out to Paul Sydlansky, CFP and owner of Lake Road Advisors in Binghamton, NY.
Q: Why might it be a good idea not to pay off your mortgage early?
Mr. Sydlansky: Mortgage rates are at historic lows, and for almost everyone, it will be the "cheapest" money they will ever borrow. While paying off the debt early reduces total interest paid in the long run, it also prohibits you from using those funds for your other goals.
Q: Who could benefit the most from not paying off a mortgage early?
Mr. Sydlansky: Anyone can benefit by allocating the funds toward other goals. In particular, if you have other debts (credit cards, personal loans, and student loans) with higher rates, those should be paid off first. Paying off a credit card with a 15% interest rate is the equivalent of earning a 15% return on your investment.
Q: What are some of the benefits of maintaining a mortgage?
Mr. Sydlansky: Maintaining a mortgage allows you to preserve liquidity. Instead of using all of your cash to purchase a home, you can hold onto the majority of it and maintain flexibility. Also, as long as you pay on time, it can help your credit score.
Q: Are there any situations where paying off a mortgage early would be the best choice?
Mr. Sydlansky: If you have a very high interest rate mortgage and are unable to refinance (and have the cash available to do so), I would say pay it off. Many people strive to be completely debt free, but in the case of a mortgage, it's not always the best long-term financial decision.
Calculator: How much mortgage can I afford?
Q: When considering whether to pay off a mortgage early, what are some things people forget to consider?
Mr. Sydlansky: It sounds simple, but a dollar can only be applied toward one goal at a time. Paying off your mortgage early reduces your ability to use those funds to save and invest for other goals. People also forget that although they will not have a mortgage payment, they will still have the taxes, common charges, maintenance, and all other costs still associated with a home.
Paul Sydlansky began Lake Road Advisors to make available a less complicated, transparent method to provide financial planning services. Make sure you sign up for Paul's blog for more helpful financial tips!
Paige Estigarribia is a writer for The Dollar Stretcher who enjoys writing about food, frugal living, and money-saving tips. Visit Paige on Google+.
Take the Next Step:
- Make sure you're not overpaying on your mortgage. If you haven't looked for a lower mortgage rate in the past year, use our simple tool that compares different lenders to see what your monthly mortgage payment could be. It's private, only takes a minute and could show you how to save thousands!
- Stop struggling to get ahead financially. Subscribe to our free weekly Surviving Tough Times newsletter aimed at helping you 'live better...for less'. Each issue features great ways to help you stretch your dollars and make the most of your resources. Subscribers get a copy of Are You Heading for Debt Trouble? A Simple Checklist And What You Can Do About It for FREE!
Share your thoughts about this article with the editor.
Debt from my past is preventing me from saving for my future! Tell us: Yes, debt is hindering my ability to save and I could use help dealing with it! or No, debt is not a problem but I am trying to get ahead financially!
More Money Tips & Tools
- Could you be losing thousands of dollars a little at a time?
- Is your financial behavior rational? Or not?
- Avoiding the 'same as cash' trap
- Saving-money secrets of the rich and frugal
- 5 low-risk ways to earn higher interest now
- How to save money fast
- 7 IRA withdrawals that don't trigger a penalty
- This week's Readers' Tips