Here's a great article:
Don't rush to pay off that mortgage - MSN Money

Great advice for those who think paying off their mortgage early is the way to go.

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That is a really good article. Not that we are anywhere near paying off our mortgage (only 22 more years to go! Woo hoo!!! ) but there are months when DH has had a great month (he is commission only) where I try and throw more money at the mortgage. DH always says no, pay off the little stuff first and then start saving. I hate when he is right.

I read the article and I appreciate the points that she is making, but I disagree with some of her assumptions.

The first assumption is that everyone's mortgage is a large percentage of the home's value or the family's net worth. In our case, that is NOT our situation.

A few years back I was talking to a girlfriend who was disturbed because she thought they would be paying off their mortgage that month. When the time came, her husband refused to do it. Why? Because he insisted they needed the tax deduction. Unfortunately, their mortgage amount was so low that they were paying hardly anything in interest and their mortgage tax deduction wasn't doing anything for them. As a matter of fact, I encouraged the woman to look at the standard deduction to see if maybe that would be better for them.

Which is practically where we are right now. We're almost at the point where the standard deduction is higher than our itemized deductions. In our case, paying off the mortgage wouldn't affect us much at all, tax-wise.

And like the article said, "There's something psychologically satisfying about knowing the bank can't take your castle."

Plus my cash-flow flexibility improves substantially when I'm no longer writing a check for over $1000 a month. That one little check is one of the factors that makes a difference between hubby having to work a standard 9to5 job and maybe starting his own business. I like knowing that there is money coming in on a regular basis so I can write that check. Instead almost all of my other bills are flexible on when I pay them. Yes, there are utilities, but those are low dollar compared to having to cough up the mortgage payment. Without a mortgage my financial management plan goes from a monthly focus to an annual focus.

You know, if I'm not making a mortgage payment, I can pay cash for my child's college education (which, because we're older, will happen about the same time that we retire). I figure as long as I'm contributing to my retirement along with paying off my mortgage early, I'm doing pretty well.

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"I've been rich and I've been poor but independently wealthy is where it is at."

Well I would like to pay more on my morgage because and I know its a big want a bigger home. I would like to own my home free and clear by the time I retire if that means paying it off early then I will count my losses. It also depends where you are in life. My parents are doing a lot of pre-payment they are going to retire next year and want the house paid for. Currently, For me I agree completely there are so many better things to put the money toward still with 132K owing our morgage interest is just barely enough to itemize. I think once we are secure if we have extra the morgage is still a good option.

Now student loans. Why would anyone pay these off 3.5% and tax detuctable interest?

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Kimberly Proud Mommy to Bethany Rose April 2006

I found this article interesting and thought I would add in Ben Stein's thoughts from the Yahoo Money page.

http://finance.yahoo.com/expert/article/yourlife/37252

We paid off our home about 6 or 7 years ago and have never had a regret. It wasn't helping us much on our taxes and we were at a career crossroad for my DH. He needed to finish his BA and get his MBA and the best, quickest way was for him to go full-time to school. This meant just getting by on my income - SCARY! We were fortunate to have the money (DH is a die-hard saver, despite my desire to spend) so we ponied up and paid off the house. Doing so enabled him to get his education, get an awesome job, and now is allowing me to stay home with DS. DH is an economist so trust me, he crunched the numbers and would never have paid it off if it wasn't to our advantage in every way. Yes, I wish we had a bigger house with all the fancy extras that the Jones's have. But, I don't want the Jones's mortgage.

I totally agree with his paragraph on liquidity.

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I think the reason why it made more sense for you was that you needed the cash flow for school. In cases where money is needed short-term, like your example, I can see where it is beneficial to pay it off early. It also makes sense if you're nearing retirement or getting close to having to fund a college education - especially within 5 years - and will need the cash flow. For the most part the moms on our site aren't quite at those life stages yet.

However, most people paying off their mortgage early have time on their side. They'd be much better off socking away their extra money in a higher-yielding option such as stocks or mutual funds. My reasoning for doing this has basically nothing to do with the tax benefit of holding a mortgage. It's more about rates of return and liquidity. See the Ben Stein article mentioned above on liquidity - he explains it better than I can!

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Again, I will make a contrary point. I don't think it is important for elderly people to pay off their mortgage AT ALL. When we're elderly, the ol' saying "Cash is King" becomes even more important. I prefer to see elderly people keep their money in investments so they can use it as a source of income. As long as an elderly person's mortgage is (1) fixed and (2) a low amount compared to their income, I see nothing wrong with having a mortgage at that point in life.

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"I've been rich and I've been poor but independently wealthy is where it is at."

Great article, Kim. Of course, you are preaching to the choir with me.