Should You Pay Down Your Mortgage?
After they’ve been in their home a while, a lot of people take a look at the situation and see if there’s a way to pay off their mortgage early. If you have a condo in the Jersey City/Hoboken area, and you’ve been there for a while, should you pay off the mortgage or keep making the regular payments? For that matter, if you are just buying a condo, should you make payments or just plunk down the cash for it (provided you have the ready funds)?
A lot depends on some variables, such as your age, your financial condition, and whether or not you intend to stay in the place for a while. We’ll look at age issues first. If you are young, and have a job with good potential, chances are that you will not be staying in one condo for years and years. You may be transferred, or you may be promoted to a position that warrants a move to a higher-end residence. Also, since you are young, you probably have plans to invest your money in such things as stocks and bonds. Chances are that this will create more wealth in the long run than the money you would save on interest and such while paying your mortgage.
On the other hand, if you are nearing retirement age, and you plan to stay in your home for all or most of your remaining years, there are advantages to paying off your mortgage in one shot. The benefits are more immediate, and you will be avoiding the risk of investing in more stocks and bonds. It may take several decades to acquire in the stock market the amount you’d save on interest and other costs by paying down your mortgage.
Another aspect to consider is the way you handle money. If you are a disciplined, confident, and knowledgeable investor and saver it may benefit you more to continue mortgage payments and use your liquid assets for wise investments. On the other hand, if you have a tendency to be hesitant and unsure about investments, you may want the peace of mind that goes with having your home debt free, especially in today’s economy.
Some people of retirement age may benefit more from not paying down their mortgage. If their adjusted gross income is relatively low, the interest they pay on the mortgage may, combined with other deductible expenditures, further reduce their taxable income. They could then opt for something like more tax-efficient Roth conversions. Of course, a financial advisor can help you make these decisions wisely.
How about you? Would you benefit more from making payments or paying down your mortgage?
Edward