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(Buying a home and financing it with a mortgage is something that every person strives to do.)
Not only does owning a home show that you are financially and emotionally responsible, but it evokes a pride of ownership that renting cannot give.
Many people are under the false misconception that they should strive to pay off their mortgage as soon as possible. Doing this is not something that is advised at all in today’s day and age.
In fact, the more mortgage you have, the more wealth building and investment opportunities are available to you.
Homeowners that believe they should pay off their mortgage completely are just cheating themselves of tremendous wealth building opportunities.
An article posted on financialone.com, “Don’t sink cash into a house,” discusses the important reasons that homeowners need to learn as to why keeping a large mortgage can actually benefit them and their financial well-being.
The main reason to keep a large mortgage is because it makes no sense in keeping all of that money literally locked in the walls of your house.
If you continuously have a large mortgage balance that means you are paying your monthly payments and using the cash that would be just sitting in your home if it was paid off, for something else.
“Everybody likes to own, because homes increase in value. But growth in your home has nothing to do with the amount of equity you hold in it; the value will rise or fall regardless of the size of your mortgage.”
“Therefore, having lots of money in home equity is like having money in a mattress: it's not earning any interest. You would never keep $100,000 under your bed, yet lots of people have a quarter million in their walls. In other words, get the money out of the house.”
The next reason why you should not pay off your mortgage and keep a pretty large mortgage amount at all times is because mortgage money is some of the cheapest money you can buy.
This of course means that mortgages have some of the lowest rates for borrowing compared to anything else.
“A mortgage (or home equity loan) costs only 8 percent and some loans are even cheaper. And you can deduct all your mortgage interest expenses. Most people are in combined federal and state income brackets of 33 percent, so the government subsidizes a third of your mortgage interest.”
“That means that your 8 percent home loan costs you only 5.4 percent. Compare that with an 18 percent credit card, where none of the interest is deductible. Result: Your home is less than a third of the cost of a credit card loan. So, if you have any debts, pay them off; if you can't replace them with a home loan.”
If you are a person on the verge of retirement with a home that is paid off it is especially important to get cash out of your mortgage right away. “The solution is to take the cash out of the house before you and your spouse retire so that it is available in the event of a financial or medical crisis. When you have the cash, you have many options. When the cash is tied up in your home, your choices are very limited.”
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