Your house mortgage

[Jazzy]

I heard that completely paying your house mortgage is unwise. Is it true? If it is, why?

 

[tango]

I heard that completely paying your house mortgage is unwise. Is it true? If it is, why?

Why do you think it is unwise?

I'm not sure I'd necessarily want the bank having control over my house for the sake of not paying them the last $10 or so.

 

[Albion]

Usually, the advice deals with the difference between a 15 year mortgage and a 30 year one. The idea is that the longer you owe, the less the actual value of the money you repay with will be, especially in these inflationary times.

And, in the meantime, the money you don't give to the lender you could be putting into some CD or whatever and earning more than you are paying in interest on your mortgage.

However, that's not to compare paying off one's mortgage entirely with having payments to make for years to come. To that, the same people are apt to say that paying off the mortgage doesn't help your credit rating, while showing your dependability at repaying borrowed money could be important to you if you want to borrow more money.

I think I see a few holes in both of those arguments, but that's what I believe the pros are saying.

 

[tango]

Usually, the advice deals with the difference between a 15 year mortgage and a 30 year one. The idea is that the longer you owe, the less the actual value of the money you repay with will be, especially in these inflationary times.

This is a good point although, depending on the interest rates, you can end up paying a lot more in interest over 30 years. It would also depend on whether you're in a field that gets good salary raises, whether your career is in a place where it might really take off etc.

And, in the meantime, the money you don't give to the lender you could be putting into some CD or whatever and earning more than you are paying in interest on your mortgage.

There's lots of talk about whether index funds would outpace a mortgage. Chances are a CD won't outpace it, not least because interest on a CD is taxed and banks seldom offer as good a rate as they charge. If you've got a 2% mortgage and can get a 6% CD, then it makes sense to do it.


Personally I like the concept of overpaying a mortgage because it leaves you knowing where you stand. When I started overpaying on my mortgage I ran the numbers and figured the effective return on the payments. Maybe putting the money in the stock market would have proven to be a better investment, maybe it would have been worse. But overpaying the mortgage was a known quantity, which was appealing at the time.

 

[Castle Church]

We paid our mortgage off, it has been a great decision that has freed up cash for other investments and helps with a general feeling of security and being free to make different decisions that we might not otherwise make if we were beholden to a monthly mortgage of $1.5-2K.