PAYING DOWN YOUR MORTGAGE. EMOTION vs ECONOMICS

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Is it a good idea to pay off a mortgage as soon as possible. My answer 90% of the time will be NO. It may make you feel good but it is economically foolish for the vast majority of people.

A mortgage is the cheapest form of debt for the average homeowner. This is partly because it has a low interest rate, but also brings with it enormous tax benefits. For most people this lowers the actual interest rate by more than a third. The real after tax rate on a 5.5% mortgage is actually 3.625%.

The vast majority of consumer debt is much higher than this. It seems clear to me that no one should be trying to pay off the mortgage with money which would be far better used to pay off a credit card.

Another major consideration should be whether tying up more money in your house is good for your on-going financial security. Once you make that payment you can never get it back without either selling or refinancing the house. Unless you have enough other assetts to handle job loss or other family emergencies you would probably be better served by investing that money where you can quickly get at it in such circumstances.

For a more detailed conversation on this topic check the following link to the New York Times.

http://www.nytimes.com/2010/03/20/your-money/mortgages/20money.html?ref=realestate

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