When it comes to paying off a mortgage, I've always known how to do it. It's all about paying extra toward the principle. However, I have debated whether or not I should do it. I can think of several advantages to owning my home outright versus taking the next 15 years to pay off our newly-minted mortgage loan. We refinanced to a 15-year fixed rate mortgage at 2.75 percent. Virtually every financial expert I've heard says it's foolish to pay off a mortgage with a low interest rate. However, I know I will get further ahead financially without a mortgage loan holding me back.
Having money for upgrades
If we pay off our home over the course of the next 15 years, I know I'll have to wait the full 15 years before we do any renovations or improvements to the home. We have already lived in our home for 8 years. I don't want to wait until my home is 23 years old before I make improvements such as new countertops and a sunroom addition. By owning our home outright, we will have the money to pay cash for home improvements.
Taking away the trading temptations
By putting my extra money toward my mortgage instead of into the stock market, I avoid the temptation to be a frequent trader. I won't fall for any get-rich-quick promises because most of my extra money is going toward my house. I can still channel 3 to 6 percent of my paycheck into my 401(k) plan, but I won't be tempted to "day trade."
Retiring years in advance
By owning my home outright, I will have reduced our monthly bills in half. I could easily retire early because we could adjust easily to living on just one income. If I invested the money into my retirement plan, I wouldn't touch it until I reached retirement age. I wouldn't be able to access the money without paying an early withdrawal penalty. Also, I would have to pay taxes on any income I earned from an IRA or 401(k). I rather reduce my expenses when I'm in my late 40s.
Relying less on Social Security
Since I am taking out a 15-year loan at the age of 40, I would still have my mortgage paid off by the time I retire. I don't want to have a mortgage when I'm retired because I am planning for receiving a reduced Social Security due to the problems with the system. By paying off my mortgage in my 40s, I'll have the option to invest much of my extra income in my 50s and 60s so I won't have to rely on Social Security as much.
Becoming a 'snow bird'
Since we already own a home in Florida, we could easily become 'snow birds' if we purchased a second home in another state. Whether we decide to buy a second home for ourselves or as a rental property, we will have that option when we pay off our primary mortgage. According to our mortgage company, we are approved now to purchase a second home. I would be more inclined to buy an investment property if I owned my home outright.
Maybe I could get a better return on my money by investing it in stocks. However, having my money in the stock market doesn't let me sleep at night. Owning my home outright offers me greater financial security, which is the real goal of any money management plan. I won't have to worry about rising interest rates because I'll be retired from the real estate game.
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