Pay off mortgage early - should I be paying off mortgage sooner
The short answer on the question - should I pay off my mortgage early is NO. In the current real estate situation paying off your mortgage sooner is completely insane. Faster isn't always better. I don't care what all the gurus are saying, but the main point is - don't put money into something which value will likely depreciate even further, or at the very best, doesn't increase for decades. Yes, you read it right, the prices of homes in US are going to stagnate for a very long time, once the bottom is reached. If someone tells you that you can always get your money back by refinancing with cash out, or getting line of credit, consider two simple facts that you will have no control on - how much money you can borrow and will you even qualify when you need the money? OK, if this is not clear for you, than the decision to pay off mortgage early is plain stupid today, tomorrow and the day after. How is that? Don't waste your hard earned money. And if you still are not convinced, read on - I will refute all the reasons and supposed advantages that you may still ponder. I didn't invent them, but found on some very reputable sites.
Paying off your mortgage faster, in 5, 7 or 10 years instead of normal 30 year term, provides emotional security and relief from the anxiety of owing money. You may simply feel more secure owning your home free and clear, in particular, if you plan to live in your home when you retire or leave a debt-free home to your heirs.
Wrong, you will get neither security nor relief, but plenty of anxiety and many sleepless nights after you pay off mortgage early only to see the value of your house going below the very mortgage you paid off. It is like watching you 401(K) melting down in front your eyes all over again. And it is not free and clear - you still have to pay property county tax, association fee if you have any, ever increasing gas and electric bills, and maintain your now paid off house.
Without mortgage payments, you'll have more money to invest and spend on other things. Your retirement savings can grow more quickly. Mortgage interest on a large and/or a high-rate loan may be costing you a hefty sum. Instead of paying interest, you could be earning interest with your funds. Eliminating mortgage payments within 5 to 10 years will free up monthly income for living expenses. It is especially helpful if you have a large mortgage with high payments.
This doesn't make sense at all. First you have to spend all your money paying off your mortgage sooner, and if mortgage is large and payments are high, we are talking about very substantial extra payments. So what funds you will be earning interest on? Second, the higher they rise the lower they fall - remember that. With high mortgage, chances are your home value was ridiculously inflated, and consequently has very long way to deflate. So to pay off high mortgage early is exactly what you must not do. If you can afford and like living in your house, just pay normally and enjoy tax deductible interest. And invest or better yet simply save your money in the bank.
This one is simply anecdotal point - paying off your loan removes loan-related stresses, as houses gain and lose value, depending on local conditions. Market changes affect the equity you've built in your home. Without a loan, you remove the risk of owing more than you own.
Well, try to dump your money into a mortgage just to see your equity evaporating in front of your eyes. You end up having no money, no equity but truly with no risk of owing more than you own. You will be worry free, because you will have nothing.
Now few more words of real wisdom - you have to understand that with the current government, you will need every tax deduction you might get your hands on, especially if you are high income earner and have sizable mortgage interest payment. If you pay off mortgage early, you will shoot yourself in a foot twice - first by waisting your money on a declining or at the very best stagnant investment, second eliminating your biggest income tax break. It is not a rocket science, is it?
Finally, a word of warning for those of you, who after reading this brilliant article will try to jumps into stock market with all the money I just saved you by convincing you not to pay off your mortgage sooner than it is due.
One - don't think that government won't let GM or Ford fail, or won't nationalize Citibank - I don't know why, I am getting many questions about those things.
Two - don't think that the rally we have seen in the last 3 or 4 days is sustainable and this is the Bear Market bottom and the beginning of a new Bull Market, as it is not. Contrary to what you have been told recently, stocks are not cheap yet.
Three - if you are not paying your mortgage early, put the money I just saved you in the bank. I don't care how much it pays. It better save them than too lose them by buying into stocks now.
Four - don't ask me when housing prices will hit the bottom - not anytime soon for sure.
Tue Mar 17, 2009 10:03AM | Copyright: www.bad-credit-advisor.com | More in Mortgage | Comments (0)
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