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Pay off your mortgage early?

By Judy Martel · Bankrate.com
Thursday, September 20, 2012
Posted: 10 am ET

It might seem like an insurmountable task, but paying off your mortgage early can be done. The question is, should you? The answer depends on many factors, including other household debt, investments, mortgage rates and age of the homeowners. But for those in the position to do so, the satisfaction of ditching a long-term debt is hard to beat.

Greg McBride, senior financial analyst at Bankrate, says the percentage of homeowners who can afford to pay off their mortgage early is small. "I can make a stronger argument against it," he says. "Paying off a low-rate, tax-deductible loan is very low on the list of financial priorities for most people." Most homeowners haven’t even come close to maxing out retirement accounts or saving an adequate emergency fund, he notes. Many are also carrying too much high-interest credit card debt.

He describes two scenarios where homeowners might pay off or pay down a mortgage early. One is a borrower whose loan balance is between the cutoff amount for a jumbo mortgage and conforming mortgage (generally, mortgages of less than $417,000 are conforming). In that case, it would make sense to pay down the loan in order to qualify for the lower-rate mortgage.

Another example would be the homeowner who has maxed out retirement accounts, has no other high-cost debt, an adequate emergency savings account, and is not saving to put a child or grandchild through school or for any other major expenses. "Then it might make sense, particularly if your loan balance is low enough that the tax deduction isn't worth it, or if you are unable to refinance," McBride says. "The benefit of eliminating a monthly payment is that you're freeing up a significant amount of money in your monthly budget."

Read the stories of three homeowners who paid off their mortgages early, and use this calculator to determine if you can do it.

If you've paid off your mortgage or paid it down, tell us how and why you did it.

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39 Comments
Anthony
September 22, 2012 at 10:34 am

I paid my house off by the time I was 48 using a money merge account. Basically using the bank's money to acclerate payment and reduce the amount of interest paid by leveraging with an equity line. Cut my remaining time in half. You are dead wrong about the two scenarios above as being the only time to pay off. Having no debt is the fastest way to wealth creation. Taxes are never a reason. Why would you pay someone,i.e. the bank, $3 to get a $1 in tax benefit when you could put the entire amount of interest in your pocket? Always better to be debt free. I do agree that this should be accomplished with still a balanced approach to funding your retirment. If you do it early enough and plan it out....you will have plenty without a mortgage payment to save for kids schooling.

AJ
September 22, 2012 at 9:10 am

It's call peace of mind. You can't put a dollar value on it. As we get older we do not want to be shacked with a mortgage payment. The only ones to advocate not paying off a mortgage are mortgage companies. They make a living on loans.

Pay your mortgage off as soon as you can......pay extra on your principle each month. Your using inflated dollars as time goes by. It's worth it. Don't listen to Mortgage Companies and Bankers.

T.M.
September 22, 2012 at 6:37 am

Paid mine off in 9 yrs, I'm now 45. Did a cash out refinance at 4.0 % fixed for 30 yrs and bought a condo in Panama City that I am renting out and hopefully paying for itself. I will do the same and pay extra at the end of the yr or every month to pay the condo off as soon as possible to have the rental income when I retire in 11 yrs. It is renting pretty good so I bought another one 3 wks ago (no more). At these prices and banks not paying hopefully I will have both paid off in 10 yrs. Couldn't have done any of this if I hadn't paid off my house. How stupid was I. Can't wait to do the same and get these paid off and retire (for good).

Mike G
September 22, 2012 at 1:21 am

I have not paid it off yet, but I look forward to doing it. I have paid extra every month. I am currently past the 50% point. I also contribute to 401k, but my argument is that paying off a 30 year loan in twenty years does not require much extra in monthly payments. However, you save much more than if you pay off a credit card with the same money in most cases since the home loan is for more than $100k in most cases whereas the credit card is 1/100th of that balance. Things are changing with the new low interest rates. When I started I was at 7%. I paid it down and changed houses twice. I was able to get 3% on a 15 year recently. I will keep paying it down. I would rather have 12k in my pocket and pay the Feds 4k of it for a net of 8k than have to pay 12k to get back 4k or less.

Bert
September 21, 2012 at 11:30 pm

How and why I paid off my 30-year, adjustable-rate mortgage 20 years early: I was employed by a large for-profit radiology PC that was bought by a much larger nonprofit multispecialty group. Each employee in the original radiology PC owned one share of it, and in the buyout process we had to liquidate our shares. I discovered that after taxes the proceeds from the liquidation of my share left me with just about the right amount of money to pay off my mortgage. I had been working for about 10 years and had a healthy, rapidly growing retirement fund, an astonishingly successful college fund for my kids (this was during the long '80s-'90s bull market), no other debts, and a comfortable cash cushion. It seemed obvious to me that I should retire my mortgage and have one less thing to worry about. I've never regretted it. Obviously, though, I was simply blessed to find myself in singularly favorable circumstances, when all the financial parts just fell neatly into place. In today's ominous economic climate, with federal governmental spending and debt insanely out of control, my happy experience would be difficult to replicate.

Pat
September 21, 2012 at 10:56 pm

I paid off my mortgage early by paying $100 a month extra almost every month. I wanted to retire early and did not want to have any debt going into retirement. I have no credit card debt, no mortgage, and no car payment. My 30 year mortgage was paid off in 18 years and at the age of 57 I am retired and living on a pension.

sid
September 21, 2012 at 10:48 pm

Never thought I'd pay off my mortgage early @ 4.5% looking back (got 5 payment left). When the mortgage rate got higher than my return on investments, it was time to pay it off. Rather pay off 4.5% money with money earning 2.5 (on a good day).

Bob
September 21, 2012 at 10:24 pm

Original 98K, 8 5/8. Refi..4 yrs. later at 6 5/8. Recently refi at 2 7/8. Cheap money. I don't consider a home to be debt. Gotta pay to live somewhere. I'd pay off a car,(wasting asset), faster than I'd ever consider paying off the house. Interest rate has to be considered in all things. If one can get 6% or better on investment why pay off loans running sub 3%? Property tax could become a burden which kind of brings up the question as to if one ever really owns the property.

Bobinderby
September 21, 2012 at 10:22 pm

First buy a house you can afford! Only use credit cards if you can pay the bill at the end of the month. If you must use a credit card pay because you don't have the money, pay it off before using it for another purchase. THEN PAY OFF YOUR HOUSE! Over 30 years your are paying hundreds of thousands in interest! When your house is paid off PUT THE MORTGAGE PAYMENT IN YOUR RETIREMENT FUND! Remember the best interest is no interest live within your means.

w. leao
September 21, 2012 at 10:13 pm

I believe the government should give the 401K holders (Over 65) a "one time" chance to pay off their mortgages with funds out of their 401K with a "capped" tax at 15% up to 250K, which would pump up quite a bit of money into the economy and would also help the bank industry.