Does Paying off Your Home Mortgage Make Sense?

Thought you might enjoy the view of my yard this morning, just before sunrise. It looks like we got about 4 inches overnight and by this time of the year (end of April), I’m ready for spring. But I digress…..

I was just reading an article on SmartMoney.com which discussed the pros and cons of paying off a mortgage early. http://www.smartmoney.com/personal-finance/real-estate/mortgage-payoff-is-a-different-investment-1303485485177/ I have to laugh because the financial writers continue to talk about the “historic” 8-9% returns on a stock portfolio and make the argument that you could make more money by investing in stocks and keeping a home mortgage that has a lower interest rate. For most people, those kinds of returns really are “historic”, as we haven’t seen them in the last 6 years.

Something the article fails to mention is the psychological satisfaction one gets from really owning his or her own home. I was just speaking with a client last weekend who told me he had 3x the amount of cash needed to pay off his home and decided to just write the check and pay it off. Of course the banks (and financial writers who are indebted to the banks for their advertising dollars) would rather you keep your mortgage and pay them hundreds of thousands of dollars of interest over time.

In 2003 we purchased our home with a 5-year ARM. Our interest rate was 4.5%. When it started to adjust 5 years later, the popular wisdom was to “lock in–interest rates are going up”. At that time a fixed rate was about 6%. Instead, we have let our mortrgage rate adjust annually and since 2008, our payment has gone down every year. We are taking advantage of our ridiculously low interest rate to pay the loan off as soon as we can. A home is not an investment, it is a place to live and raise your family.

Residential real estate can be a great investment. Rental properties in Park City, UT are providing some of the best returns they have in years. It’s a different situation when your tenants are paying off your mortgage. Presently there are more renters than rental properties available, so the opportunities are truly “historic!”

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