When Not to Pay Down a Mortgage

By RON LIEBER March 19, 2010

This article evaluates options when considering extra mortgage payments to pay off debt before the loan period ends. Since the Federal Reserve announced it will not buy any more mortgage-backed securities the mortgage rate is not likely to sink lower and interest rates are only going up from where they are today. The author of this article first looks at the amount of money people get back in the form of tax deduction, which makes the “real” interest rate on a mortgage actually lower than the stated rate. When looking at the interest rate on a mortgage after adjusting for tax deduction it can be more profitable to look at placing the extra income in interest bearing accounts that are higher than the interest rate of a mortgage rather than lowering the balance of a mortgage. According to this article many people sometimes don’t think about this and choose to make extra payments because the idea of retiring with zero debt is more appealing. People who are approaching retirement are the ones who look fondly on the idea of having zero debt and thus begin paying higher mortgage payments because they believe later on they will sleep better at night.