I like this article on the Zillow Blog on whether you should pay off your mortgage early, which covers six areas to consider, and emphasizes that it’s a personal decision.
- Does your employer match your retirement savings?
- Do you have any debt other than your mortgage?
- Do you think you could get a better return on investment in other things?
- Do you have an emergency fund?
- Do you currently owe more than it’s worth?
- Does the amount of mortgage bother you?
The first three emphasize that if there are better investments (with a higher ROI) than your mortgage interest, you should invest in those instead. The fourth emphasizes that it’s good to have an emergency fund (they recommend 24 months, which is quite conservative). These all make good financial sense to me.
The last two seem entirely personal. I don’t see any advantage, except psychological, to pay it off if it’s underwater. After all (and I’m not advocating this), you lose the option of doing a short sale if you do decide to move, and if you have the extra cash you can always pay it down when you do decide to move.
In my case, I see my three rental properties as businesses, and mortgage is a business expense that’s paid for by the rental income. By leveraging these investments, I was able to buy three houses instead of just one, and with interest rates this low I’d rather have the cash to invest in other things with a higher than 5% ROI (like more houses!). That said, I might start to pay down my mortgages when house prices go up and it no longer makes sense to buy rental properties.
So, in my case it’s a business decision to leverage as much as possible, but I can certainly see the emotional argument to pay it off and be debt-free (especially for a personal residence, and when I get closer to retirement).