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Dorothy Rosen -- The Dollar Diva Ask the Dollar Diva

When does it make sense to pay off a home mortgage?

Dear Dollar Diva,
In your column, "Is it wise to buy a car with cash?" you say that a person should pay cash for a car if he has the money to do so. Would the same apply to buying a house? Or paying down an existing mortgage on a home somebody already owns?

Wouldn't it make more sense to take out a mortgage and invest the cash? Especially since you can get a tax deduction for the interest and real estate taxes.

Obviously, you would hope that the investment return would be greater than the interest you're paying on the loan.


If you have a "cash mentality," and a heap of money, you'll like the idea of one day owning your home free and clear. You don't get to deduct mortgage interest, but you don't have to pay it either. And the money you're saving on house payments can be used to fatten your investment portfolio.

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But before you think about paying off your mortgage, make sure you have all of your financial ducks in place. It's a lot easier to give money to your lender when you're flush than it is to get it back when you're needy. Here's the position you want to be in:

  • You have no other debt.
  • You're making maximum contributions to your tax-deferred retirement plans.
  • You have enough cash in the bank to cover emergencies, such as an extended period of unemployment or major repairs on your home.
  • You have a comfortable portfolio of stocks and bonds working for you.

The Diva thinks everyone should strive to have his home paid off by the time he retires, so if you're lucky enough to have all of your financial ducks in place, go for it. You'll find that a life without a monthly house payment is sweet, indeed.

-- Posted: April 9, 2001

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