Monday, April 12th, 2010
In general terms, we’re big fans of owning your home free and clear, at or before retirement. But there are always people who think otherwise.
They usually argue that, “Well, you know, mortgage money today’s cheap. So keep your money invested at higher returns (or interest rates) and when the market goes up the difference if yours to keep.”
The investment argument has some merit, but not in an apples to apples comparison. If you’re going to keep a mortgage and have money invested in the market, the mortgage is guaranteed, so you’ve guaranteed to pay the interest back to the bank. The investment in the market is, as we all know, not guaranteed. So sometimes you might come out ahead, but sometimes you don’t come out ahead.
Some people complain that their taxes will go up, but usually forget that their monthly cash flow will also improve since they won’t be making mortgage payments every month. So in almost every case I find, on a net-after-tax cash flow basis, that you’re better off not having a mortgage. The argument that the home is a tax deduction just doesn’t hold water. Where does it make sense to give a mortgage company $1.00 of interest just so you can save $0.25 on your income tax?
When it comes to a Worry-Free Retirement and we look back, especially to the 2008 market meltdown, and we put our clients into two groups — people with mortgages and people without mortgages, I don’t need to tell you which group was sleeping better at night.
Bottom line, people with no mortgages sleep better at night! So if you want a Worry-Free Retirement, a big step in the right direction is paying off your mortgage!
Tags: brian Fricke, certified financial planner, finance, financial advisor, Financial Management Concepts, financial planner, Financial planning, retirement, retirement planning
