Should You Pay Off Your Mortgage Early?

If you have a 3% mortgage, your money will probably do better in the capital markets than the 3% interest you're paying. If you have a 6% mortgage your money doing better in capital markets is less certain.

If you bought less house than you can afford this becomes easier to do. We've done this a couple of times including paying a lot of extra money in the house we live in now. There is still the same investment potential tradeoff to consider but just a couple of hundred extra per month will shorten your loan considerably and save thousands in interest.

"When I told him I wanted to cash out money from retirement accounts rolled over from a former job, he advised against it." I think that is what Singletary did which shocks me. This makes whatever your paying for more expensive because of the tax that will be owed and the penalty if you're under 59 1/2 years old. The tax issue would not pertain to a Roth IRA nor would the penalty if the money had been in there at least five years.

With a big enough extra payment, Singletary said you might be able to reamortize your payment. As an extreme example if your mortgage balance is $200,000 and you pay in $50,000 extra your bank might let you lower your minimum payment while keeping the term the same.

An example of something I would not do. If I had $100,000 in the bank and my mortgage balance was also $100,000, I would not pay off the mortgage such where I now had nothing left in the bank. People can decide for themselves where that fulcrum point is like if you had $200,000 in the bank and a $20,000 mortgage balance, I'd go for that but what about a $50,000 mortgage balance or $100,000? I don't know the answer but no money and no debt is not as good as some money and some debt. That assumes not being racked with a lot of credit card debt at 20% APR.

That probably doesn't make sense for too many people now because interest rates have jumped so much but if someone is 10 years into a 30 year mortgage and they refinance to a lower rate but do so for 30 years, they might not be helping their long term finances.

Being mortgage free is more important to me than the math of opportunity cost of investing in markets. We had a 15 year mortgage that we paid off in 10 years first by making extra payments early and then a couple of larger payments at the end.

Those are common knocks against owning a home in the first place. Our tax and insurance are mostly known expenses totaling about $3400/yr. That less than $300/mo, for now, is likely much less than anyone could pay for rent anymore at least for any sort of relatively normal sized living space.

You will occasionally see articles that detail how little money is made from real estate after factoring in taxes, insurance, mortgage interest and repairs. Regardless of how that math works out in your specific situation, once your house is paid off you have a piece of equity available by selling the house. Selling may or may not take a while depending on the market where you live but what is the approximate value of your house? That value is stored and will probably increase slowly (maybe quickly) over time.

Whatever your beliefs, someone will disagree with you but if being mortgage free resonates, you can do it and it makes financial sense then go for it.