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Sunday, May 22, 2011

Why I Don't Want to Pay Off My Mortgage

When I downsized into 1200 square feet from 2500 by selling my home, a lot of new questions popped up. 
  • Rent vs. Buy my next living space?
  • If buy, then how much mortgage?  How much down payment?
  • How many years to pay off the mortgage?
I did rent for a while, then I bought, so that answered one of the burning issues.  (And I saved money renting!)   Now I'm working toward financial freedom and keep fighting the urge to pay off my mortgage.  
Reasons to pay off:
  • Great peace of mind (no mortgage payment - yeah!
  • Sense of accomplishment
  • Pride of ownership

Hmmm....wait a minute...these are mostly emotional reasons, aren't they?  Then I began reading Ric Edelman's best-seller "The Truth About Money."   He cites 11 great reasons to carry a big ole' mortgage.  What?? 

At least two of the elevent reasons have to do with tax benefit -- which I disagree with.  Figure your interest payment each month ($350*12 for me = $4,200).  My mortgage tax deduction doesn't decrease my my taxes paid by $4,200.  My contribution toward my 401 (3) B helps my tax burden out much more than that.  
But one good argument that really caught my attention:  your mortgage is really against your salary -- not the value of your home.  Bankers give you a mortgage based on your ability to repay it via your salary.  After your retire -- will you be able to get a mortgage for your primary home?  Probably not.  How much equity is in your home that is frozen there unless you sell?  Probably a LOT.  How much cash will you need in retirement?  As much as you do now! 
For many of us, our homes are our primary asset.  A mortgage is a way of getting to that cash.  Hmm....I'm not so interested in paying off my mortgage in 15 years now.    But it still drives me nuts that I'm paying so much in interest -- which isn't nearly offset by the tax advantages. 
Are you house rich and cash poor?  Or are you keeping a mortage (as long and as low a rate as you can get?)