RE: Is paying off your home early a bad idea?
GermanStar - 6/21/2005 5:21 PM
Unless you can earn more interest than you're currently paying, dump the mortgage. I would dump it anyway because I hate owing money.
That's the essential answer from a mathematical standpoint. If you pay 5% interest on your mortgage and can make 7% on the investment then don't pay it off. Also take into account the amount you can deduct from taxes (if you pay $10,000 a year in interest and pay 30% for taxes you can include an additional $3000 a year in the calculations which reduces the effective mortgage interest rate).
The reality is often different. My wife hates any kind of debt and would rather lose the extra money she could earn to pay off a mortgage. Other people like the mortgage because it's a structured payment (in NJ) that includes the property taxes and the homeowner's insurance.
You also may want to look at other issues like credit rating. Mortgages are "good debt" which may allow you to borrow more money if you need it. But the mysteries of credit ratings are forever changing and not based in reality so I don't know if I'd rely on that...
I love the Swiss method, they only pay interest and pass the mortgage down through the generations. A very interesting concept...
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