Monday, November 26, 2007

Pay Off The Mortgage-Yes or No?

I have been debating whether I want to save up enough money to pay off my mortgage but not actually pay it off or do I want to actually pay off the mortgage. This article list the reasons why I shouldn't pay it off: Ben Stein's Advice But I do not have a long term outlook with this money that I am saving. I am investing it conservatively at around 5%. My mortgage interest rate is 5.87%. I don't get a break on the interest as far as taxes are concerned because the house will be a rental. The main issue is whether I want to lock up that money in my house. Sure, I hope the market has recovered by then and I can sell or I can keep on renting it out and have some extra income. But I won't have a down payment to start building my own home. I will have to live in an RV for the next 4 years or until I can sell for a price I like. That's not a horrible thought, just something to keep in mind. I think I will be more motivated to actually pay off the house because I can watch the principal of the loan decrease month after month. Watching my money grow in the bank is fun too but not as much.

I actually had a wild idea to buy a second rental house using my savings as a down payment. One look at the houses that I could afford (handyman specials) convinced me that was a BAD idea. Just what I need, 2 mortgages and lots of repairs!

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