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A Great Argument For Paying Off Your Mortgage Rather Than Investing The Extra Money

By Erik Folgate

The debate over paying off your mortgage early versus investing the extra money into the stock market is one that many financial “experts” argue back and forth over. I have made a few posts about this in the past, and it usually generates quite a few comments from you all.

Read this post from Free Money Finance.

FMF talks about an article from Money magazine about a financial planner who gives a great argument for paying off your mortgage early. My position is that you should pay off other debts first and start investing 15% of your income towards retirement. Then, you should definitely start trying to pay off your mortgage early. The article that FMF references to will answer many of your questions about the argument for tax deductions on your mortgage interest and investing the extra money rather than paying it off early. I think he makes some very strong points.

Here is a thought for the upcoming week: Would you rather have a banker run your financial life or would you rather be your own banker?

Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

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  • http://www.lazymanandmoney.com Lazy Man

    I didn’t see any math there that backed up the paying off a mortgage early. I’ve seen a lot of math in favor of investing. If a banker makes me more money, I’m happy to let him run my financial life :-).

    • Clawdogs

      Crapola. Pay it and fast. Screw those banks and amortization! !

  • author

    The math does tell you to invest rather than pay off your mortgage early, but you have to factor in that the level of risk in your life will greatly decrease if you pay off your mortgage. Your family will NEVER have to worry about being foreclosed on and losing the roof over their head.

    Plus, when investing, you need to factor in capital gains taxes and the added interest you’ll pay by never paying off your mortgage early.

  • http://micah.xebedee.com/still_life Bobo

    I agree with Lazy Man, but only in that there wasn’t any math. Personally I would want to get rid of ALL debt as quickly as I could. I don’t have a mortgage, but I’ve been looking into the Money Merge Account. I agree more with what The Jubilee Project has to say about paying off mortgages than anyone else out there, and I’ve read quite a bit. The one thing I must admit I haven’t done is get a Money Merge Account.

    And I think that when you say have a banker RUN your financial life, you should say have a banker RUIN your financial life! ;) Because all too often that is what happens. That is why I would like to have software to help me, but ultimately, I get to make the decisions. I don’t know. What do you, or anyone else think?

  • Sally

    I agree a banker will RUIN your financial life. No one will respect your money like you do.

    Tax benefits are wonderful when you have a mortgage. Basically, if you pay 5k in interest, you get to deduct taxes on 5k of income. So you are basically saiving 20% of 5k of 1k. Still 4k went down the drain in interest.

    Personally, I am chosing to pay off my mortgage early. I am not putting every cent of my savings toward that but I am making an extra payment a year which should pay off my 30 year loan in 22 years. If you don’t own a home, you don’t realize what a pain in the ass insurance is. If you have a mortgage they can change what their requirements are in regards to the amount of insurance you are required to have. Yes insurance is a good thing in the event you need it but right now the real estate market & all its industries are out of wack.

    I know this is a little off track but it helps make my point that sometimes you can save money on other things when your mortgage is paid off.

    Take two identical homes on the same street. Home A was purchased 15 years ago for 100k. Home B was purchaed this year for 300k. Homeowner B is going to be required to purchase insurance for coverage on atleast 300k. Homeowner A will only have to purchase on balance of loan but let’s just say that they decide to be proactive and insure their property on 150k. Insurance Premiums on Home A are half those of Home B. If both homes burn down to the ground, the insurance company is only going to pay replacement costs up to policy limits. It is not going to cost $300k to rebuild. You already have the lot and a new construction on an average home here in south florida can easily be found for less than $200. So why would you need all that extra coverage? Because you have a mortgage and they require it!! Money down the drain. Insurance adds up, especially in Florida where you can be required to purchase Wind, Flood, and Homeowners coverages.

    Okay, I think I am done venting now =)

  • author

    Haha, keep venting, girl! It’s therapeutic. Very good point though. Another advantage to paying off your mortgage early is that you dont have to deal with the mortgage company.

    When I issue claims checks, anything over $1500 bucks gets the mortgage company’s name on it. This is a pain in the butt, because you have to get the mortgage company to sign off on the check before you can deposit it

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