Should you pay off your mortgage early?

Marketplace Staff Feb 9, 2007

KAI RYSSDAL: We ask for your questions every week. And I’m happy to say, most of the ones we get are really good. But there is some repetition in there, too. And lately there’s been a mortgage theme: if you could pay it off early, whether that’s a good thing to do.

Bob Rose is the executive editor at Smart Money Magazine. He’s also a homeowner. And Bob, help us out here: if you’ve got the cash to do it, is paying off your house smart?

BOB ROSE: It all depends on a whole lot of things. Some financial, some emotional. You know . . . age, income, how comfortable they are with debt. Whether they expect their job to continue. I’d say, if they have high interest debt, credit card debt. No, pay that off first. If they don’t have a rainy day fund. If they lose their job, do they have a six month fund or so to dip into. No, don’t pay off that mortgage. If they’re worried about retirement, they haven’t saved enough. Or college, you know, for their kids, and they haven’t saved enough. Think about that first.

RYSSDAL: Yeah. Let’s say, though, that that whole picture’s not so bad. You’re keeping up with your payments, you’re doing your 401k and everything’s fine. And you get this idea that, you know, you want to make bi-monthly payments. You want to accelerate your payment schedule. Are there hazards associated with that?

ROSE: Yeah. There are different ways, of course as you imply here, to pay down your debt. And bi-monthly or bi-weekly mortgage is one way to do it. Now, I thought of doing that myself, frankly, with my bank. And then I looked at the fine print and there was an extra charge of, say, 20 bucks a month to do it. The alternative to that is to every month pay another hundred dollars, or $200. And the advantage of that is, if you don’t have it the month after that, you’re fine. You can still meet your mortgage payment.

RYSSDAL: What about just refinancing from a 30 to a 15-year mortgage, say, and taking care of it that way?

ROSE: That’s another way to do it. Let me talk about myself for a minute: I . . . you know, I’ve moved around a bit. And every time I move, I get another 30-year mortgage. And as you get older and you start adding 30 years to your age, you think, “Oh my God, I’m gonna be retired and I’m gonna still have this darn mortgage to pay off.” Psychologically, I don’t wanna feel like I’ve wasted my entire working career without paying off my mortgage. Now that, financially, might not make the most sense. But emotionally, at least for me, I want that little bit of comfort that I’ve paid it off.

RYSSDAL: Let me get back to the thing you were talking about up at the top. We’ve been through the nose, what about the goods? Why would you pay off your mortgage early?

ROSE: Age is a big factor. If you’re young, and you haven’t started saving for college or your retirement, then you ought to put the money there first. But if you’re getting up there in years, and you’re thinking about retirement, you probably want . . . or at least many people probably want to have that paid off. And so if they can do it, and go into retirement without that mortgage payment, then I think that’s a good thing. Now they’ve gotta remember, they’ll probably still owe real estate taxes and homeowners insurance. So you’re not completely free and clear.

RYSSDAL: Bob Rose is the executive editor of Smart Money Magazine. Bob, thanks a lot.

ROSE: Sure. Thank you.

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