Should I Pay Off My House Early? – Pros and Cons

If you have a high interest rate mortgage, refinance to a lower interest rate if you can. If you have a low interest rate mortgage, it makes more sense to invest your money elsewhere, because you'll likely get a better return than you would on paying extra on the mortgage.

We don't have a mortgage yet, so I'm just speculating what we would do. I don't think that paying off the mortgage has to be all or nothing. I think we would pay an additional amount towards the mortgage, while also putting more into retirement/investments. I know, that's not a very definitive answer : )
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I have a paid off home. It is great. It allows me to do lots of things my friends can't do (like travel). It also helps alot because we have a kid and the cost of day care is pretty much like having a mortgage payment. I know you are getting married soonish, but after that the talk about when to have kids will come about. Kids are really expensive. I know I was told this, but it is true. Our little boy is pretty healthy but has still cost us $10K in medical bills the past two years because he has had chronic ear infections (I'll take those over what other parents have had to deal with).

Of course the finance geek in me says keep the low rate mortgage invest the difference and profit! In the end I'll default to what I usually say when giving advice… you have to do what makes you feel comfortable.

Well, I have no future, but my wife and I are probably very close to being ready to buy a home. For us, I think we would find a nice place that we could completely afford without any issues, but then do a 15 or 20 year mortgage. That way we'd be throwing extra money at it, but not so much that we'd call it "paying the mortgage off early."

We're in the "pay it off" camp. Just not having that thing hanging over our heads brings much more peace of mind, at least for us, than we would have if we were making money through investing.

I think we will take a multi strategy approach. Save for retirement, invest in a taxable account, and pay off mortgage. We do want to pay off our house early when we have one though. But I don't think we will take the gun ho approach and pay it off asap.

If you can pay it off within a YEAR, I would totally be paying it off! I'm assuming that your next house will be bigger and so utilities, property taxes, and everything would probably be more. You're also paying PMI now on your current house, which is expensive. If you pay off your current mortgage and then turn around and sell the house, that's sort of like a 1-year CD paying your interest rate. If you don't pay it off, I would at least pay it down so you have enough equity to refinance and get a lower rate.

Disclaimer: I'm paying off my mortgage aggressively and should have it gone within 3-5 years. I think it's a little bigger than your guys' mortgage though! (It's just over $240k right now and I've paid down over $40k in the last 10 months.)

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I don't have a mortgage, but I would not pay it off early. It's less definite, but I feel I'd be giving up a lot of upside investing in higher risk/higher return vehicles. That is scarier to me than having mortgage debt. If I could, I would lock in a mortgage at these crazy low rates and keep it for 30 years. In another climate my decision might be different, though – it's all about the spread between the mortgage interest rate and the return you're likely to get for the amount of risk you want to take.
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I've accelerated my mortgage payments (biweekly vs monthly, plus an extra 20%) in spite of the fact that my rate is reasonably low, but I thinking I might not bump it up the acceleration any further than I already have. As it stands it would be in my best interest to save/invest any extra money going forward because I'm more likely to get a better return on it through investing than what I'm paying on my mortgage. That and my financial position is not very liquid at all; almost everything I have is locked into either my mortgage or retirement savings. If I was sitting with a healthy investment account I would probably look more seriously at paying my house off earlier.

If you're serious about considering paying your mortgage off, I really wouldn't give the tax break given to your mortgage interest any consideration. Which is better: paying ~60% of the interest, or paying 0% of the interest?
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I won't overpay my rental mortgage since the rate is super low and more than covered by rents, and then I bought my home cash to feel really at home. Best of both worlds!
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I forget how old you are exactly, but if you could pay off your current house, rent it, then buy your long term house and pay it off in five years, you'd be in such a good position at such an early age. You could invest, buy more real estate, no limits to what you could do. I've never heard anyone say they sure wished they hadn't paid off their house. Everyone I know who owns a house outright is ecstatic about it.

I own my house free-and-clear (as well as no other debts). I know it's not the most optimal thing to do as far as leveraging money and maximizing returns, but there is a LOT to be said for the peace of mind not having to make rent/mortgage payments. I built my house in 2005 (23 at the time) and in 2009 my business got absolutely hammered with the economic downturn. Having that free-and-clear house was a lifesaver. If I had any sort of mortgage payment I almost certainly would have lost my house like many others did during the downturn.

"And, I’m the type of person who keeps a large amount in our emergency fund. Even though we will probably never have to tap into it, I still want it."

I do keep a good amount of cash handy, but for my true emergency fund I have a HELOC on my house. I have a 3.74% rate, it cost me absolutely nothing to set up, and I only pay interest on the amount I use. So, it's not like having that money in my house makes it completely inaccessible.

I get a kick out of it when people tell me "but you're missing out on the mortgage interest deduction!" For some reason spending a dollar to save a quarter isn't too appealing to me. I'd rather keep the whole dollar.

With that said, I don't think there is a right or wrong answer as to whether it's better to pay off a mortgage early or try to invest that money elsewhere. First, it is a personal choice. (How much is peace of mind and being completely debt free worth to you?) Second, you can only see if you made the best decision in hindsight. If you pay your house off early rather than investing in the stock market, and the stock market decides to have a correction for the rest of the year, then you made the right decision. If the stock market goes up more than the rate of your loan, then you made the wrong decision. Sadly, you don't get to know beforehand which is the right decision.

Paying mine off early isn't a focus…yet. I've got a pretty darn low interest rate and the "extra" money I have that could go towards paying it off faster is better suited for other goals right now. Down the road I'll make paying off the mortgage more of a priority, but right now it's just not that important.

Always a tough call that's a balance of emotions and financial goals.

You might want to take a look at your current amortization table for your mortgage. Maybe I missed it in the article, but you said you could pay it off in a year if you paid it down quickly. How long would it take to pay it off slowly? If you don't have more than a few years left then you are probably paying mostly principal and just a small amount of interest. If that is the case you might want to put the money to work elsewhere.

We don't have any equity right now, so we're looking to put every last penny we have into our condo and even borrow from my 401k and put that money into our home so we can get to 20% equity within the next month. We've started the refinance process and our new mortgage payment will be a huge drop from what it currently is, which nearly offsets the cost of the 401k loan. When my 401k loan is paid back in 5 years we should have a decent amount of equity in our condo, a mid to low 3% interest rate and after the refi we will be saving our extra money, so we should have a healthy down payment saved up. We plan on buying another place in roughly 5-6 years and renting our condo. At that time I don't think we will pay down our condo quickly, but I would definitely consider paying down the house quickly if the interest rate is high and simply for peace of mind.
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We should have the mortgage paid in full if all goes well with paperwork and red tape by the end of May or sometime in June. The money is saved. We just want to have no debt and then take that extra money every month and continue investing and see where life takes us. Nothing over the top, just simple.
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Just wanted to let you know that I linked to this post on my site here http://shopaholicsavers.com/?p=4505 because I thought this was a great post!
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We do have our house paid off completely. While some may argue that it is wiser to not tie up your cash in a house, we felt that the freedom of not having a mortgage was well worth it. We have no house payment and know that if anything happened, we would at least have our home….and the bank can never take it away. And that’s a pretty good feeling.

I’m glad you discuss the pros and cons of this issue. It’s disconcerting when people characterize all debt as bad. Some debt is good, when it allows you to make investments you wouldn’t otherwise make. Like so many commenters mentioned, a mortgage less than 5% allows you to use your excess cash flow to invest in retirement accounts or the stock market, reap an average 10% return, and essentially keep the difference in yields. However, if you are sitting on a boatload of cash in your checking account earning less than 1%, use a good portion of it to pay down your debt.
More than anything, I think the idea of “owing” a bank or company just has a psychological stigma.

I favor paying off the mortgage early. I have an MBA from a top business school and I work for a Big4 consulting firm in strategic finance. I know a lot about finance.

Financial advisers often provide advice to individuals based on finance theories about how the capital structure in corporations should be managed. There is a [huge] difference in how capital structure is approached for an individual versus a corporation. A corporation has a lot of tools to manage risk that an individual (or couple) do not have.

Of course, you should pay off high interest debt and build up a cash reserve first. But, having done those things, if you are generating extra cash you should apply it to your mortgage.

First, the mortgage deduction is a wash and at best it is not a factor. People who bring that issue up have never run the numbers themselves taking all factors into consideration. It you are paying AMT then the mortgage interest deduction argument is laughable. Second, financial advisers will often tell you how you can make a better returns by putting the money at risk by investing in the stock market. That is nonsense. For the last 15 years the market has gone sideways at best. The models financial advisers present where you are making 7% per year consistently are a joke. Counting on the market to provide good returns over a 15 to 30 year period is also an unrealistic expectation.

In addition, our leaders in Washington DC are making decisions that have and will continue to result in tragic consequences for investors and the economy. If you invest the money you have to take a risk on the companies/funds you are investing in (could be good or bad), the overall economy (could be good or bad), and the policies of the government (consistently bad). As government debt and unfunded obligations snowball you are taking the risk that the government might confiscate financial holdings someday.

Just in the last 15 years we have had two dramatic plunges in the stock market that were 100% attributable to bad policies from Washington DC. And the medicine that the politicians prescribed is more of the same. The politicians (both Republican and Democrat) in Washington DC bailed out their friends by confiscating your financial holdings (in a tricky way). When government prints money or credits money to the accounts of banks at the Federal Reserve it is stealing value from the financial holdings of the people. The government is confiscating people’s wealth without them knowing about it. Outright confiscation is just one step away. Outright confiscation was authorized by the Dodd-Frank banking reform bill that passed during Obama’s first term.

Think about what you get if you pay off your mortgage. You are debt free. You have to worry less about job loss. You can retire earlier. You could afford to take a less stressful job with lower pay if you choose. You know you will always have a roof over your head. After paying off the debt you have freed up cash flow. While it is easy for government to confiscate financial holdings it is very hard for government to confiscate real estate holdings. You have a economically and emotionally valuable asset to leave to your children. You have all this guaranteed.

One more thing to remember. A lot of financial advisers make commissions on the sale of certain financial assets. They may charge fees based on the amount of money you are investing in the stock market. They have a personal financial interest in convincing you to invest in the market rather than paying off your mortgage.

If you are investing in an education or a business or paying medical bills then paying off the mortgage might not be the right thing to do at the moment. But for most people in their working career, eliminating the mortgage is a smart thing to do.

I would definitely try to pay off my home early and have gone so far as increasing the over-payments as well as making a few extra payments per year. The interest rate at the moment for my mortgage is 4.74% and the way I see it is paying more means spending less on my mortgage in the future which means I will have more income to spend on the things I really enjoy. It would be such a liberating feeling and would unleash your from the burden of debt and give you the green light to pursue your dreams. Great post, really enjoyed that.

I paid off first and second house as soon as I could. Debt tends to act like Cancer. If you don’t have any, then you tend to want to keep it that way. No car loans, no student loans, no credit card debt, no furnaces on hydro debt, no anything debt -ever, for any reason. There are always risks with investment, and if your portfolio is down by 50%, you might start wishing that you had paid off your mortgage first.

But I’m a person who has lived through very high interest rates, and it’s hard to forget, and hard to believe that double digit rates won’t return. If they do return, there is going to be a financial slaughter.

Never borrow from retirement it is protected from bankruptcy you will also lose 10% in fees and penalties and you pay tax on the money twice.