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Pay off your mortgage early?

By Judy Martel ·
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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September 24, 2012 at 9:05 pm

You'd have to be an idiot not to pay off your mortgage if you can.

September 24, 2012 at 2:44 pm

I cannot believe someone would want to PAY OFF a mortgage at any time whatsoever. Same is true of a car loan. If all these people who say they have paid off a loan understand their house is worth nothing like what it was when they first took that mortgage and will not reap that same amount, unless we all of a sudden hit a 10-year high market where all of us can sell our homes for much higher prices, then fine. I have friends who sank all their money into their homes, the mortgage is paid off, they, however, want to move and cannot because they would not get anywhere near what they bought their homes for. One person is in that scenerio and was laid off, found a new job in a different state, but cannot move there due to the fact that she cannot sell her house. Her neighborhood has now deteriorated because of all the surrounding foreclosures, people who are moving into those foreclosures are buying at $125,000 (she bought at $330,000), the school bonds are dead in the water now because they cannot get anyone to vote them in so the school districts are going underwater, good families are not moving into this area because of bad marks against the schools, etc. This is just one scenerio of what has happened to one neighborhood. By the way, this friend who paid off her mortgage because she was gifted with an inheritance would never "rent" her home because l. she can't afford to keep flying back and forth to watch over it 2. she can't afford a company to do that either 3. she now fears for her life in a neighborhood overrun by crime due to foreclosure breakins, people who are renting some of these are not people who you would normally wish to live next door to who rent for $200 per month 4. could not rent her lovely home out to someone and ask more money than the other renters are now paying due to "comparable rates in that scenerio."
While it might be dandycake for some people who moved into older, more nicely established neighborhoods where everyone there has lived for upteen years and have ALL paid off mortgages, that is just not the case generally in America.
In this economy of great fluctuating costs, foreclosures, lack of jobs being created, companies closing up, expensive school taxes that are not actually feeding into the schools and helping the students but, in actuality, the powers that be are putting those funds into their salaries (not the teachers) , lack of good teachers (12 of 16 friends of mine who WERE teachers gave up teaching and went into other lines of work due to budget constraints, lack of discipline in the schools, list goes on and on here).
If any good result is to come from what this recession has taught us it is to be frugal with our money in all we do. I did not even have credit until I was 32. I got a department store charge card. Up to that time, I always paid cash for everything I bought. Life was nice and simple. But times changed all this. The banks MADE US ALL RELIANT ON CHARGING. This was the start of the recession, years ago, not just the last few years. The deregulations in the airlines, in our banking systems, in our housing market then contributed to this present recession. Our money is worth nothing. Who are we kidding? Our own basis of what we call OUR ROCK is bankrupt - that means, dear friends, we can FEEL affluent, but it is all a sham. Each day everyone gets up and has the feeling that they are going to work to earn money - when that money actually does not even have any value!!
I truly believe that the global community needs to step back, clear all debts for everyone everywhere and all countries start clean with no debt whatever. If we do not cooperate with one another in this world and do what we can to assist each other out of this mess, the entire world will continue to be off center, more strife will ensue and pressures we have yet to experience will strike us all. It is time to wake up world.

September 23, 2012 at 8:07 am

I am 54 and thought it was a good idea to pay off my mortgage before I retired. Am I wrong?

GUs Carvajal
September 22, 2012 at 7:08 pm

If it was not for the banks big or small you would have not be able to have a home nothing is free. Your comment is just WRONG!!!!

J. Berkey
September 22, 2012 at 5:43 pm

This comical idea of not paying off homes early because of tax advantages and lower interest rates is unfortunately not an uncommon one.

If you truly believe this is sound advice, I have some "swampland in Florida" I'll sell you at 3.5% on a 30 yr term!

Our beloved banking lenders continue to "blindsiding" the American public into "looking for the best rate" in their home loan lenders. While this is certainly an important part of the lending "equation," by far the most important piece of the puzzle is "term."

Unless you are Donald Trump who can depreciate millions of dollars of real estate investments over time, it is ridiculous to think that a "wimpy" tax write off to Uncle Sam could even come close to your "total dollar savings over time" by paying off your mortgage early.

$250,000x4.5%x30yrs=total $ payback =$455,760 = $1266 pmt
(paying back nearly double to the bank over 30 years! Have fun!)

$250,000x4.5%x20yrs=total $ payback =$379,440 = $1581 pmt
svs ($76320) over 30 yr

$250,000x4.5%x15yrs=total $ payback =$344,160 = $1912 pmt
svs ($111,600) over 30 yr

(non of the above include a 20% downpmt which should be mandatory, re taxes or insurance)

Paying off your mortgage early also opens up many other opportunities, piece of mind, pride of ownership, safety in case of disability or job loss, and additional disposable income with plenty of opportunity for future investment. (Not to mention, all the money that you have saved by paying off early!)

Remember, whenever you fill out any application or tell anyone you are a "homeowner," it is a lie. You must actually hold the "paid in full" and "release of lien" paperwork from the bank.

Until then, you are just renting from the bank!

Sorry Ms. Martel, it is just your kind of thinking in this article that has helped to create the family burdens and terrible debt situation that out country currently experiences.

September 22, 2012 at 4:46 pm

We paid off our mortgage a few years ago and were, and still are, very pleased we were able to do it. Being debt free removes both a financial and psychological burden. My wife and I were able to retire early as a consequence.

September 22, 2012 at 2:28 pm

I wonder if those who lost their homes because of mortgage debt, over mortgaged to maintain a lifestyle or those who are currently upside down would agree? Debt is a double edged sword - OK when you can afford it and a disaster when something unexpected happens. Losing a job is a common recent theme, but accidents, illness and investment loss are also recently common. If you own your home it is yours, not a mortgage company, bank or government. On paper, a mortgaged home's assests look good but it's funny money to most wage earners.

September 22, 2012 at 1:17 pm

We paid off our mortage on our last house and began saving for our next home. We built this home BEFORE houses went so outragously high. We paid cash for this house. We call this our "retirement" home because we plan to stay as long as possible. We are both retired--although NOT millionaires--we live comfortably. Figure out how much you REALLY pay for your house, including the interest, by the time you pay 15, 20 or 30 years (even at the lower interest rates). We recommend everyone pay off their house--ESPECIALLY BEFORE you retire.

Ricardo Small
September 22, 2012 at 12:03 pm

The best thing my wife and I ever did was pay off our mortgage. We've been home owners for over forty years and are now retired. If we hadn't paid off our mortgage when we did, a little over ten years ago - before the real estate crash, we would not have been able to sell our house. We would have owed more than it was worth. We would not have been able to retire when we did. And, there is very likely going to be a strong push to remove mortgage interest from deductible items for income tax purposes. Too many homeowners used the equity in their houses like credit cards, refinancing at every opportunity with "cash out" loans. When the real estate values tanked, those homeowners went under water and are drowning now. Pay off your mortgage as quickly as you can!

September 22, 2012 at 10:53 am

I paid my mortgage off in 5 years. I do not like paying any interest to big banks! Every month I donate an amount equal to the interest I was paying to a great charity. I get a tax deduction for charitable contributions. It works for me. It is a win/win situation.