What makes paying off your mortgage appealing?
A mortgage is a guaranteed monthly expense. Well, at least for now it is. However, you don't have to wait 30 years, or even 15 years, to be mortgage free. If you're willing to put 100% effort into paying off your mortgage early, you can be mortgage-free in less than 10 years.
Below, we'll discuss both the benefits and possible detriments of paying your mortgage off early.
Benefits of Paying Early
If you're like most American families, your mortgage is your costliest monthly expense. But, what would you do if you didn't have to make a mortgage payment each month? How many doors would suddenly open to you?
In essence, being mortgage-free provides you with financial freedom. You can continue to earn your yearly household income, without having to fork over $10,000 to $25,000 of it for a mortgage payment.
Here are just a few of the financial benefits that you'll be able to enjoy without a mortgage:
• Pay off all of your debt in order to truly live debt-free• Purchase a brand new car with cash• Become a landlord; invest in the real estate rental market in order to earn passive income• Purchase a vacation home for your family• Take exotic vacations• Purchase a boat for leisure• Fully invest in your 401k• Save 100% cash for your children's college tuition• Renovate your home without the need to incur more debt• Build a fully stocked emergency fund
These possibilities are just the tip of the iceberg! For example, if you're able to get rid of an $1,800 mortgage payment, that's over $21,000 per year that you can save or spend in any which way you please. By saving up just 5 mortgage payments, you can pay for a $9,000 car outright. Or this can also be used as startup for a small business you can start on the side of your 9-to-5 job.
Not everyone believes that paying off your mortgage early is a smart idea. And truthfully, for some people, paying off a mortgage early isn't the best option. This includes those with astronomically low interest rates and those with an already tight budget.
Here are some of the most common arguments for opting to keep your mortgage payment:
1. Tax credits. When you hold a mortgage, you're able to use the amount you pay in interest as a tax deduction. However, deducting $15,000 would save a mere $3,750 in taxes.
• Would you rather have $15,000 in the bank (plus the payment that is applied to your principal) or save $3,750 on taxes? $15,000 could buy you a new car, while $3,750 might only pay for your family vacation.
2. Diversification. Some people believe that diversifying your investments is the most secure route to ensuring the highest return. If you spend all of your extra money each month to pay off your mortgage payment early, you won't be able to partake in other investments or build a hefty nest egg in case of a rainy day.
• A good rule of successful investing is certainly diversification, as it minimizes risk.
When it comes down to it, eliminating your mortgage payment provides you with the security of knowing that you'll always have a roof over your head, whether you lose your job or not. Plus, you also gain financial freedom - and wealth - by being able to invest in opportunities which otherwise wouldn't have been available to you when paying a mortgage payment.
Paying off your mortgage early will take hard work and dedication. And for several years, you'll need to pour a great portion of your available cash into increasing the power of your payments. But the sooner you pay off the mortgage, the sooner you can have the life you've always dreamed of.