I put the money in the day I closed on the house and took the mortgage. If anything the only added money going "into the house" is the interest on the mortgage so paying it off early is actually reducing the amount of money I'm putting into the house. Right?
Allan Roth on the matter:
Consider Paying Down Your MortgageFaulty arguments against paying down the mortgage:
Here are three of the most common arguments I regularly hear to counter my advice.
- A more balanced portfolio of, say, 60 percent stocks and 40 percent bonds can earn more than what you'd gain by paying down your mortgage. Though this may be true, it is more a case of comparing apples to oranges. This argument is analogous to taking out a margin loan on your brokerage account to buy more stocks. You might earn more if your stocks go up, but I would not recommend it, even though margin loans are often at lower rates than mortgages. Also, I've heard this argument for decades and, so far this century, bonds have outperformed stocks. Borrowing to buy more stocks has backfired.
- You don't want to put more money into the house. While I agree with this statement, it's irrelevant. I'm not suggesting a house remodel here. Again, paying down the mortgage has no impact on the price you ultimately sell your house for.
- If you don't fully pay off your mortgage, your monthly payment typically will not change. This statement is also true, but it's not the full picture. Because a much greater proportion of the monthly payment is going toward principal as you pay down your mortgage, the mortgage is paid off much sooner and you still save the interest payments.
The one valid argument for not paying down the mortgage, assuming you have the money to do so, is that you may need the cash to live on. Once the mortgage is paid down, it's not so simple to borrow the money again. Though there are ways to get access to cash, such as a home equity line of credit, you should feel comfortable about not needing the money you'd use to pay down the mortgage.
Once the mortgage is fully paid off and the consumer still has income, I recommend continuing to make the monthly payments to a savings or investment account.
In deciding whether this advice is right for you, keep two things in mind:
- Neither banks, brokerage firms nor financial advisers benefit from this advice. Banks want you to keep paying them monthly interest on your mortgage. Brokerages and financial advisers would rather have you invest with them the money you'd use to pay off your mortgage. This is why the conventional wisdom you often hear from the financial industry is to keep your mortgage.
So if you have enough access to liquid investments and you don't mind cutting my industry out of profits, consider paying down the mortgage.
- Think about it: Have you ever met anyone who regretted paying off their mortgage?
How to earn 3 to 6 percent annually with no risk
by Allan Roth, January 25, 2016