Paying off the mortgage early is an idea with obvious appeal, but not one that many middle-class home “owners” pursue. If your interest rate is so good that the bank just made a bad bet in giving you that low rate, you might want to continue enjoying the benefits as long as possible. In many other circumstances, however, paying off the mortgage can be a fine money management move indeed. [Below are 10 sound reasons to do so.] Words: 1588
The comments above & below are edited ([ ]) and abridged (…) excerpts from the original article written by Rob Bennett (www.passionsaving.com)
The reality is that it’s often a better idea to pay off your mortgage as early as possible than much conventional money management advice suggests. [Below are my 10 reasons:]
Reason #1–It Provides Peace of Mind
Even conventional money advisers acknowledge that there is a peace of mind that comes from paying off the mortgage early. Unfortunately, they often speak of the peace of mind gained as if it is something that shouldn’t count for much in the minds of those who are smart enough to run the numbers before making their financial decisions.
I disagree. We all spend money all the time to gain access to good feelings–the excitement that comes from riding a rolling coaster, the connected feeling we get from making a donation to our favorite charity, the ego boost we obtain from sitting in a car that shines after its trip through the car wash. The peace of mind obtained from paying off the mortgage comes at a higher price than most feel-good purchases but the good feeling we obtain from making this choice lasts a long time.
a) Paying NO Monthly Mortgage Payments
I say that peace of mind is worth a lot, and those who know that they would feel a lot better about their futures if they didn’t have a monthly mortgage payment to make should give serious consideration to the idea of paying off the mortgage. Feeling good about your future is worth a lot….
b) Being in CHARGE of Your Finances
Another good feeling that comes from taking this step is the feeling of being in charge of your finances. Many of us often think of doing something to improve our financial picture, but fail to act on those thoughts. Pay off the mortgage and you have done something concrete and tangible. You will have made a difference and you will know it. That may give you confidence to take a good number of other money actions that also need to be taken.
c) Feeling LIBERATED from Conventional Thinking
It’s not the norm to pay off the mortgage early so you will also feel liberated from conventional thinking if you take this step. That also can be a big plus.
c) Acting on What is Best for YOU
Pay off the mortgage, enjoy the benefits that flow from doing so, and you will begin thinking of yourself as the money expert that knows the most about what is best for You, Inc. You are!
Effective money management requires a certain willingness to engage in independent thinking, and even the fact that you are considering the idea shows that you have what it takes. Going ahead and taking the plunge will confirm for you in your own mind that you are one of those willing to go your own way when necessary to make financial dreams come true.
d) Celebrating Your Financial FREEDOM
Look at paying off the mortgage early as a celebratory event – as something you do because you like the freedom that comes from no longer needing to make payments to the company store. Celebrate the financial freedom you experience when you reach the point where that monthly mortgage payment is no longer one of the items on your list of Bills That Must Be Paid.
Reason #2–It Reduces Costs of Living
What is the core thing you must do to obtain financial freedom early in life? You must reduce your costs of living. Paying off the mortgage early reduces costs in a number of ways.
a) Eliminates Interest Costs
If you are like most middle-class workers, interest costs are a big item in your monthly budget. You have to live somewhere so it is not realistic to think that you can do away with housing expenses altogether but you do not have to pay interest costs. Those are an add-on imposed on those who elect to borrow. Elect instead to pay off the mortgage, and those costs disappear into thin air. Nice!
If you are not in a position yet to pay off the mortgage altogether, you might try paying off just enough to eliminate mortgage payment insurance costs (PMI). Doing that will allow you to enjoy in a smaller way the magic trick of making costs of living disappear and may encourage you to take bigger steps somewhere down the road.
Reason #3–It Diminishes the Fear of Job Loss
One of the biggest fears that trouble middle-class workers today is the fear of job loss. Money advisers tell us to put six months of living expenses away to cover emergencies but don’t you worry at times that in the event you really do experience job loss that that will just not be enough?
If you paid off the mortgage, however, and no longer had to make those monthly payments, the prospect of a job loss would not cause nearly as much worry.
There are lots of spending categories that you will be able to cut back on if you lose your job…but you have to make the mortgage payment, don’t you? Do away with that worry and you have to a large extent addressed your concern over what will happen to you financially if you lose your job.
Reason #4–It’s a Saving Goal That Provides Strong Motivation
The conventional saving goal–financing an old-age retirement–is not a goal that generally provides the motivation we require to actually take steps to move money from the spending column into the saving column. It is short-term saving goals that work. Paying off the mortgage early is a short-term saving goal (at least compared to financing an old-age retirement).
Make a decision to pay off the mortgage, and you will begin to think about how much you will enjoy reaching the goal. Your anticipation of the good feeling to come will cause you to save more than most middle-class workers think is possible. Motivation matters.
Reason #5–It’s a Marriage Strengthener
What cements a marriage is the things you do together, the things you accomplish over time by combining the power of the different skill sets possessed by the two marriage partners….Paying off the mortgage early is a long-term project…but at the end of all this, you will feel like you climbed a mountain together. On the day the final mortgage payment is made, it will feel like you are at the top of the mountain looking out at an awe-inspiring view….You will love her (or him) a little more than you did before you embarked on this adventure together.
Reason #6–It Highlights the Benefits of Financial Freedom
…[Wanting to have financial freedom is just wishful thinking unless action in some regard is taken. Paying off one’s mortgage early does does just that. From that day forward you truly have financial freedom.]
Reason #7–It’s a Safe Investment
Money directed to paying off the mortgage early pays a highly predictable return–the reduction in interest expense achieved by doing so. At this time of overvalued asset classes, that’s something not to be overlooked. You know you are getting a nice return on your investment when you use it to pay off the mortgage.
Reason #8–The Tax Deduction Is Often Oversold
Many do not pay off the mortgage early because they do not want to give up the tax deduction available to those who make mortgage interest payments. That’s an important concern. The reality, however, is that many do not obtain as much benefit from the tax deduction as much conventional money advice might lead them to think. If you do not itemize your deductions, you don’t get the benefit. If you are subject to minimum tax rules, you might not obtain the full benefit. You need to check your circumstances to see if the availability of the tax break really justifies a decision not to pay off the mortgage.
Reason #9–It Fosters a Low-Spending Mindset
It’s harder to get serious about cutting back in other spending categories when the amount you spend on housing is so high. Pay off the mortgage and all of those other “small” (compared to the mortgage) expenses begin to look not so small afterall.
Reason #10–It Simplifies Money Management
There are all sorts of complexities involved in hanging on to a mortgage. The most important one is that the big number in your budget category for housing expenses makes it hard to keep a firm grasp in your mind on how much you need to earn to keep body and soul joined [together for] another month. Get the total monthly number down, and the entire money management project becomes a lot more, well, manageable.
Is the peace of mind (and all the rest that goes with it!) that comes from paying off one’s mortgage early one of the New Luxuries made avaiable to middle-class workers of today as a result of the Productivity Bonus we have all enjoyed in recent decades? I say yes.
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