While paying off that principal is certainly an achievement, it’s not one you want to rush. Holding onto a mortgage payment can seem counterproductive but getting rid of it isn’t always the smartest financial move.
Here are some reasons why you should hold on to those monthly payments.
You get a big tax break on your interest
Homeowners get a federal and state tax deduction on mortgage and home equity loan interest for up to a $1 million loan. If you find yourself in a higher tax bracket and with a significant mortgage that will put you above the standard deduction, you’re looking at even more savings. Holding onto your mortgage longer allows you claim that deduction for the life of your loan.
You have other debt with a high interest rate
Mortgages are relatively cheap money to borrow, so it could make sense to use the cash to pay for other needs such as higher-interest credit card debt. Because mortgages tend to have lower interest rates than a credit card, using extra cash to pay off those debts will save you money on interest in the long run.
You want to make sure your emergency and retirement funds are safe
If you’re planning on paying off your principal by dipping into your savings account or retirement fund, think again. Using one of these options to pay off your mortgage can give you a false sense of financial security. Unexpected expenses can destroy your financial standing if you don’t have money available. As far as dipping into your retirement goes, just don’t do it unless you absolutely have to. And if you do, prepare for it to cost you : Since the money has never been taxed before, you’ll see deep cuts when you take it out.
You could be making a higher return elsewhere
If you spend all of your money paying off your mortgage, you won’t have it to invest in other places, which limits your potential for cash return. Sometimes having a mortgage on one property allows you to go out and purchase a rental property and get a good cash-on-cash return. Just make sure you know what you’re getting into! Whether it’s investing in real estate or buying bonds, just think of what will give you the biggest financial gains.
