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Should you pay off mortgage early?

Posted by The Paramount Team on April 19, 2017
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While not everyone in the greater Worcester/Blackstone Valley is fortunate to ask this question, there are some homeowners who have the luxury of being able to pay off their mortgage early.

Should they? Or should they hold onto that cash and make it work for them elsewhere?

In fact, this is a question many retirees ponder as well. Should they use part of their nest egg to pay off their mortgage and gain a sense of security? Or should they leave their nest egg intact, where it earns little interest, and let their mortgage provide them with a tax deduction?

This is a tricky question to answer, because there are positives and negatives to both sides of the argument. But if you decide to keep your mortgage, then trust us, you won’t be alone.

More than 30% of households headed by someone aged 65-74 carry a home mortgage debt. But is carrying a mortgage into retirement something you should avoid? Or does it make fiscal sense?

Unfortunately, it completely depends on your personal financial situation.

 


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The tax benefit of your mortgage

Most homeowners cherish the tax deduction that comes with homeownership. But often times, that deduction doesn’t really amount to much, unless you live in a pricy house, in a pricy part of town.

You have to determine your own financial situation. You might discover that paying off your mortgage is a very smart tax move, since you’ll benefit from the standard tax deduction regardless.

Don’t touch your 401(k)

If you planned on paying off your mortgage by using funds from your 404(k), then you can stop right there. A few financial experts took a look at this scenario, using real-life examples, and what they determined was that nearly 40% of households that accelerate their mortgage payments instead of saving in tax-deferred accounts are simply making the wrong decision.

We get it. The idea of not having a mortgage is enticing, but you have to remember that your home isn’t a liability, it’s an asset. If, for some reason, the going got real tough, you could likely sell your house and come out on top, or even. For most people in this region, it makes far more fiscal sense to invest money in a tax-deferred retirement savings, rather than pay off their mortgage.

If you happen to be one of the fortunate folks who can pay down their mortgage in cash, this still might not be the best idea for you. Imagine all of the investing you can do with that cash, including, heck, investing in more real estate.

In the end, we always recommend that our clients turn to the advice of a financial expert before they make any decisions. If you do decide to look into buying  – or selling – real estate for investment purposes, then the team here at Paramount is ready to help.

Contact us today to learn more.