Should You Payoff Mortgage Early?

Many adjustable rate mortgage and even fixed rate mortgage owners are interested in the benefits if they payoff mortgage early. Here's a look at the benefits and drawbacks.

While there are clear advantages to using a financial windfall to payoff mortgage early, investment consultants say it depends on many factors.

If you are relatively young with a low interest rate on your mortgage, best to use any extra money you have to invest in stocks, bonds or other investment vehicles. There are a lot of years ahead of you for your investments to grow. You are liable to make more money this way that by paying your mortgage down.

If you are nearing retirement age, you'll want that extra cash in hand so best to get rid of the outstanding balance.

From a resale point of view, you would be narrowing the market if you were to pay off your mortgage, leaving the title freehold. By leaving your mortgage as it, you are leaving your property open to a greater pool of buyers who may have the cash to assume your mortgage rather that go through the mortgage approval process.

By paying off your mortgage, you will no longer have the ability to write off the interest. Approximately 82% of Americans write off this interest, which can frequently be more than the standard deduction on your federal income tax.

If you have a large chunk of money to pay off your mortgage, you may lose a great investment opportunity while the volatile housing market fluctuates. Say you still owe $180, 000 on your mortgage and you pay it off. Then, house prices start to fall and the value of your home falls to $150, 000. You've lost $30, 000. If you keep your money in a bank, it will never lose its value.

Compare the potential return on investment between real estate and another investment vehicle such as the stock market. If your mortgage rate is, for argument's sake, 6%, can you make at least 6% by investing your money? At least you'd come out even.

At the end of the day, you have to analyze what your financial goals are and whether you have the temperament to take risks by investing. If you have an opportunity to get rid of a $1,500 a month mortgage payment, not including taxes, that might be attractive enough that the future doesn't quite matter. This may be especially true if you have an adjustable rate mortgage that may reset sooner than later.

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