MORTGAGE FREE REAL ESTATE MATTHEW PILLMORE
of taking the standard 30 years to pay off their
mortgage, they paid it off in well under 10 years.
Ask him if he cares about the tax deduction they
missed out on, and he’ll probably look at you like a
crazy person. Why? Because the decision to prepay
was never JUST about the math to them; it was
about their financial freedom. And math aside, they
have never regretted their decision to pay off their
Pay Off Your Mortgage or Invest? The Math
Says…
On one side, some experts argue you should NOT
prepay your mortgage if you are locked in at a low
interest rate. Their reasoning: You would be better off
INVESTING your money where a reasonably
diversified stock portfolio can expect to earn at a
higher rate of return on average over the long run.
Add in the home mortgage interest deduction you can
take on your federal taxes and, they say, you would be
silly to prepay your mortgage and miss out on those
perks.
To this group, the question is just about math. After all,
why would you prepay a loan at 3% or 4% and lose
out on part of a valuable tax deduction when you could
invest that money instead and earn considerably
more?
But There’s a VERY Important Side to
Prepaying Your Mortgage, Too
Still, there are plenty of experts who forge ahead with
their mortgage prepayment plans. My parents
(including a CPA father) fell squarely in that category.
home and become entirely debtfree.
Most people agree with that sentiment, eventually.
Most, just don’t like debt. It’s as simple as that.
But others prefer a deeper analysis.
Analyzing the Pros and Cons
For starters, let’s take a look at what the home
mortgage interest deduction really means.
The easiest way to figure out your home mortgage
interest deduction is to look at your effective tax rate.
Say your overall tax rate is 22%, for example. On
average, the home mortgage interest deduction
reduces your taxes by $22 for every $100 you pay in
mortgage interest.