Recently, I have heard several people advocate that they should not pay off their home mortgage in order to live a debt free lifestyle because mortgage rates are at an all time low. For instance, the article at
business.time.com, states that "You might be better off keeping the mortgage and investing the money elsewhere, which amounts to borrowing at a tax-deductible 3.5% in order to start a business, invest in stocks, or purchase an income property."
My advice. Payoff the mortgage as quickly as possible. Before I add some caveats to think about, I will discuss why this can be advantageous. First of all, when it comes to success, there is no time like the present. Taking action today, even if these are baby steps can mean a big difference twenty years from now. In addition, unfortunately, you never know when your family might be hit with one of the
four Ds. I have never met anyone who has regretted paying off their mortgage, but I have met people who have lost their home because they didn't pay off their mortgage. About 95% of people fit into the category where they should just pay off their debt.
Now, for the caveats. First of all, when it comes to business and leveraging, I would say an experienced investor, may purchase a home with 0% down. This is how a 22 million dollar real estate empire can be created. I've seen it happen. The concept introduced by the article above assumes that the person will have the staying power to not lose their current home. It also assumes that the savy investor will be wise in where they invest their money. For many Americans, a guaranteed match with inflation is much better off than the risks of investing.
All this said, I typically tell people that they should do both. That is, rather than put all their eggs in one basket, they should have a plan in place for their current retirement as well as a plan in place to pay off their debt.
This post was reposted from
http://finlit.biz/debt/should-you-pay-off-your-home/, originally written on June 4th, 2013.
From Hannah
I agree that we should pay off our mortgages as quickly as possible. We should, I think, strive to be debt-free as far as possible. One path toward this goal is to give sustained, serious thought as to what we truly need.
The US (among other countries) has become toxically focused on material goods as measures of happiness and success. Would your car or your clothing or your furniture truly impress someone with your worth? If so, you need new friends, not new goods.
Paradoxically, the US economy might collapse if it stopped being able to sell a false dream of prosperity via items that no one really needs. A roof, some good (healthy, fresh, home-cooked) food, and people who love you…there’s not much else that matters.
So, I absolutely agree that you should pay your mortgage off. And then maybe look toward what good you can do in the world with any extra money, instead of focusing on another trip to the mall.
From Scott Izu
Well stated!!! Thank you for your feedback. :)
From Hannah
So is there something you would recommend we put our extra money toward? Any particular charity or investment? I think of this kind of thing often, and am not sure what to do. I want to be mindful, as an investor in the future, and as a person who wants to leave the world a better place than I found it. You might be surprised how many people (some you might know) who feel this way.
From Scott Izu
Hannah, the best thing for you to do would be to go to http://finlit.biz and click on the Contact Us button and enter your contact information. Someone can give you a call and assess your particular situation and what is best for you.
From Hannah
I would have gotten in touch, but I am very disappointed by further reading on this site. The actual literacy is lacking (Berenstain Bears level). Worse, there is a heavy Christian tone that is off-putting to non-Christians. I want financial information, not a sermon from an anti-scientific “book” that was invented in the Stone Age. I want a financial advisor who has current, informed, world market information, not fantasies about how a tiny, ancient tribe who stoned adulterers (among other heinous acts) has some secret insight into my investments. No doubt you will not publish this comment, and that is fine. But you might want to reconsider your presentation, and how off-putting it will be to many people, and that the current receptive audience is particularly uneducated, poor, and ill-informed. If you want to be an evangelist, go for it. But don’t confuse it with your other (“financial literacy”) goal.
From Scott Izu
Thank you for your honest feedback. I appreciate the thought and time put into your comments. I am not big on censorship and believe you have some valid points. Here are some additional insights that you might find useful.
On a macro scale our nation went from having one trillion dollars in circulation in 2007 to having four trillion in circulation in 2013. This effect of printing money has the potential to decrease our standard of living to 25% of what it is today. We have seen cities such as Stockton and Vallejo go bankrupt. Our government is a reflection of individuals.
So to address the issue, I focus on the individual families at the micro level. There, we see cable, cell phones, electricity, taxes. and credit cards eating away subtlety, since people essentially work for thirty years and then spend twenty years in retirement. On top of that, the family is being broken up by divorces and other issues, corroding our nation at the micro level. How do we save families, thus improving our micro level finances, and in turn making a global impact on a macro level?!?
From Hannah
Okay, I got schooled. I would probably not normally reply further, but I am very impressed by your anti-censorship attitude and thick skin. You are a better person than I am. You deserve respect, and I thank you for your open-mindedness.
I agree that we have enormous macro-level economic issues in this country. The system is gamed, I think, against the economically disadvantaged — as well as women, minorities, etc. So how do we fight back and improve our lives? I am a woman; I’m paid less than men in my field. I find that my partner is better off, and he knows it, and uses it, albeit subconsciously. I try to make good financial decisions, and I’m generally successful, but it’s still difficult to find a balance between smart decisions and wanting to be a good human being (charitable donations, etc.).
It’s a complicated world. I couldn’t maneuver it without friends, personally. Thank you for your open mind and ears.
