So, I'm looking at possibly paying off my mortgage but I'm not really the 'finance' guy.
I can pay it off; that's not the issue.
The question is, SHOULD I pay it off & what are the 'pros' and the 'cons' to paying off a mortgage?
Please chime in with opinions & if we have any real estate folks here that would be cool too :mrgreen:
It's hard to say. Without seeing your tax return, we can't know what if any tax benefits you get from the mortgage interest deduction and so can't determine the bottom line cost of borrowing. It's a safe bet after the changes the mortgage costs you the stated interest rate, so that's what you save by paying it off.
Several people have already said the question is what is the best use of the amount of the payoff. If you pay it off, you avoid the net interest charges - that's your investment 'return.' If you invest it, you get what you get, depending on where you invest the money and how well those investments do. If you knew what your return would be from investing, the choice is that easy - compare the interest rate on your mortgage to your rate of return on your investments, pick the higher one. Easy!
I'll just add, though, that the 'return' from paying off your mortgage is a
risk free rate of return, safer even than investing in Treasury bonds - you WILL avoid the interest payments on your mortgage, period. It's not really apples to apples to compare that to a risky investment like the stock market, which might go years with a negative return. So it's a question of expected returns and your risk tolerance. If you're a long term investor and make good choices, likely investing it will produce better returns long term, but it's risky.
Bottom line is I've always advised nearly everyone to pay off the mortgage if they can if for no other reason being debt free allows you to weather adverse events much better - job loss, expensive illness leading to loss of work, etc., and a
risk free return of 5% or whatever is a pretty damn good return in this environment.
The necessary (IMO) step 2 is setting up a plan to save at least most (better ALL) of the former mortgage payment, as opposed to using the savings to buy more crap. People made ends meet with a mortgage, and can do it without it, so it's a good time to make a commitment to saving money with monthly goals, either through work or some other routine method such as writing a monthly check to Schwab or Vanguard or wherever. People who wait till the end of the year and aren't disciplined find out that it's often all been spent, and they've ratcheted up their expected monthly spending, which is...bad.
