Kate Ashford
\n\u00a0|\u00a0 NerdWallet<\/p>\n
Trinity Owen\u00a0and her husband bought their four-bed, three-bath home in\u00a0East Concord, New York, in 2019, and they quickly began sending extra money toward their mortgage to pay it off early. Then the couple did some simple math.<\/p>\n
They compared what their extra payments on the mortgage would save them in interest, versus what that same amount invested in the stock market could grow to in 25 years at the average annual market return rate.<\/p>\n
\u201cThe difference shocked us,\u201d says Owen, who is a digital marketer. \u201cWe no longer pay a dime more on our mortgage, even though we could pay it off from our investments more than twice over.\u201d<\/p>\n
The Owens discovered something that financial planners already know: Sometimes it doesn\u2019t pay to pay off a mortgage early.<\/p>\n
The surprising advice: Keep the debt<\/p>\n
For many, being debt-free is the ultimate goal. But aggressively paying off a low-interest home loan can actually do less for your long-term wealth than other financial moves, like tackling higher-interest debt, investing in the stock market or saving for retirement.<\/p>\n
\u201cIt usually doesn\u2019t make a lot of sense to pay off, say, a 3% mortgage early,\u201d says\u00a0Tyson Sprick, a certified financial planner with Caliber Wealth Management in\u00a0Overland Park, Kansas. You could put that cash in a money market account right now, he says, and earn more than that.<\/p>\n
The perks of keeping a mortgage<\/p>\n
Carrying a mortgage has other advantages.<\/p>\n
For one thing, keeping cash available gives you more flexibility.\u00a0Melissa Caro, a CFP based in\u00a0New York City\u00a0and founder of digital platform My Retirement Network, reminds clients that if they pay off their mortgage, all that money is tied up in the house.<\/p>\n
\u201cOnce you give that money away to the bank, it\u2019s theirs, you can\u2019t have it back,\u201d Caro says. If you need funds for a major repair or emergency, she says, you may end up borrowing again or selling investments that could trigger taxes.<\/p>\n
Another plus: Your mortgage interest may be deductible if you itemize on your taxes. \u201cThe higher your income is, the more valuable that deduction is, and it does make a huge difference in some cases,\u201d Sprick says.<\/p>\n
When paying it off makes sense<\/p>\n
That said, holding onto home debt isn\u2019t always the optimal plan. If you\u2019ve got a high-interest mortgage and enough cash to pay it off early, your financial planner might give you the green light. It might also be advisable to work on the debt if you\u2019re nearing retirement \u2014 a life stage when owning your home outright can be especially useful.<\/p>\n
The question, Sprick says, is whether people have enough cash to pay off their mortgage and pursue other goals at the same time. Are you able to attack your home loan while also putting money away for college and keeping your emergency fund intact?<\/p>\n
If you can zero out the mortgage, Sprick says, but it leaves you with nothing left in your bank account, it\u2019s better to wait. \u201cYou have to leave yourself some liquidity,\u201d he says.<\/p>\n
The emotion of debt<\/p>\n
The wild card in all this math is that financial decisions aren\u2019t 100% rational. Money is tied to emotion and feelings of control, and some people just want their debt gone.<\/p>\n
\u201cMany people find the idea of living with no debt empowering,\u201d says\u00a0Josh Brooks, a CFP with\u00a0Exponential Advisors\u00a0in\u00a0Weatherford, Texas. \u201cIt\u2019s about financial freedom and peace of mind, more than the numbers alone.\u201d<\/p>\n
Still, putting feelings over math might mean you earn less over time, have less liquid cash and make less progress toward other financial goals.<\/p>\n
\u201cThere are some people who say, \u2018I don\u2019t really care, I just want it gone. I just want that feeling of not owing anybody anything,\u2019\u201d Sprick says. From a financial standpoint, it may not be the ideal move, \u201cbut life is more than just a spreadsheet.\u201d<\/p>\n
The bottom line<\/p>\n
In the end, everyone\u2019s situation is different, and you have to make the best decisions for your own finances. If you\u2019re unsure of the best approach, talk to a financial professional.<\/p>\n
The good news is that you don\u2019t have to be stressed if you\u2019re paying off a low-interest mortgage for the next few decades \u2014 it might be the kind of smart money move financial planners often suggest.<\/p>\n
For Owen and her husband, keeping their home loan has allowed them to invest in scaling her online jewelry business, and also to invest in stocks and local real estate.<\/p>\n
\u201cOur future would look very different if we had unwisely paid off our mortgage instead of using that money in what we believe are better ways,\u201d she says. \u201cThis mindset has greatly changed our perspective on paying interest for necessary purchases.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Kate Ashford \u00a0|\u00a0 NerdWallet Trinity Owen\u00a0and her husband bought their four-bed, three-bath home in\u00a0East Concord, New York, in…\n","protected":false},"author":2,"featured_media":277093,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[64,63,99,485,707,3376,1791,13110,64089,55521,55526,25236,186,5480,25068,596,36416,5476,65158,12349,324,3127,1025,323,335,184,185,13558,2648,441,3918],"class_list":["post-277092","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-au","tag-australia","tag-business","tag-california","tag-college","tag-college-football-playoff","tag-content","tag-debt","tag-debt-management","tag-diy","tag-diy-u0026-expert-content","tag-expert","tag-finance","tag-financial","tag-financial-planning-u0026-management","tag-football","tag-how-to","tag-investing","tag-loans","tag-management","tag-neutral","tag-new","tag-new-york","tag-overall","tag-overall-neutral","tag-personal-finance","tag-personalfinance","tag-planning","tag-playoff","tag-u0026","tag-york"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/277092","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=277092"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/277092\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/277093"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=277092"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=277092"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=277092"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}