Wait Before You Pay Off Your US House Mortgage

Many folks want to pay the home mortgage off as quickly as possible but that might not be the best solution for taking care of personal financial affairs

US News have published some interesting facts on mortgages – quote – The first reason that people should not pay off their mortgage is that it doesn’t make financial sense. A few weeks ago, a man called in to my radio show asking if he should pay off his mortgage. He owes $50,000 on his house, so he was considering using half of his $100,000 mutual fund investments to wipe out the mortgage.

Rather than pay off his mortgage, I recommended he keep his money invested. He has a 5 percent interest rate on his mortgage, and the interest he pays can be deducted when he does his tax return. Depending on his tax bracket, his interest cost leaves him with a net mortgage cost of roughly 3.6 percent (or $1,800) per year after taxes. If he keeps the $50,000 invested in the stock market rather than paying off his mortgage and earns the stock market’s long-term average return of 10 percent or more, he would have an annual gain of $5,000. Subtract the $1,800 mortgage interest cost from $5,000 earned by staying invested, and he could end up $3,200 ahead. If he continues to invest $3,200 per year over the next five years, he can accumulate $16,000 or more, money he wouldn’t have by paying off his mortgage.

‘So before paying off the mortgage do the math and work out what is the best way forward in processing all mortgage payments!’

Read the full US News clip here

http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2011/01/18/dont-rush-to-pay-off-your-mortgage

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