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Should I pay off my home mortgage?

Written by: Sally Herigstad

Article Overview: I want to pay off my home mortgage by the time I'm 60. Is it a good personal finance strategy to put all my spare money into paying off my mortgage, or is it better to invest the money in stocks or mutual funds and hope that I have enough money to pay off my mortgage when the time comes?

Should I pay off my home mortgage?

Some people say that paying off your mortgage is one of the most important financial goals you should have. After all, once your mortgage is paid off, you can afford to live on much less, and you can feel more secure with your house all paid for.

Other people say that mortgages nowadays don’t seem geared to ever being paid off. Most houses are sold long before the mortgages are paid off—often to buy more expensive homes with larger mortgages. The mortgages are usually for 30 years, regardless of the age of the applicant. Why try to pay off your mortgage when you may not live there forever, anyway?

Many people derive a sense of satisfaction and security from having their mortgage paid off. Owning your house free and clear simplifies your financial life, and it can give you an unparalleled feeling of freedom. Unfortunately, with spiraling property taxes, even owning your house free and clear doesn’t guarantee a roof over your head for life. And with the lost opportunity cost, just because you’ve paid off your mortgage doesn’t mean your house isn’t costing anything for you to live in it. It's easy to think of something that is paid for as not costing you money. However, the money in your house is not earning you money and providing income, which it could if it were invested elsewhere.

If you are still young, you will probably sell and replace your home several times before you retire. So you may not gain much by paying off your mortgage in a hurry. You will hopefully gain more equity in your home by rising home prices than by trying to work down the mortgage. You should definitely pay off higher-interest loans, make retirement plan contributions, and make sure you have an emergency fund before you make extra mortgage payments. If you should need the money, it can be expensive to have to refinance your home or apply for a home-equity loan.

As you get closer to retirement, however, paying off your home makes a lot of sense. Many people buy a smaller home after the kids leave home, or they retire to an area where homes cost less, so they can pay for a house outright or pay off their mortgage more quickly. Eventually, most homeowners want the security of living mortgage-free.

So which is the better strategy for you? You may need to think about several issues before planning your approach. Compare the costs of maintaining debt, your investment returns, and other factors to make sure your resources are working as hard for you as they should. What's right for someone else may not be right for you.

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