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The Payoff Argument

Few questions about personal finance receive more attention than the argument as to whether a person should pay off his/her mortgage early. While I believe there are good arguments both ways, my sentiment generally lands on the side of the early payoff. Often you will hear financial advisors say that prepaying the mortgage on your home is a terrible idea. They make the argument that other investments are more worthy of your disposable dollars, and that interest on your home mortgage is tax deductible. And there is a percentage of households for which this had great meaning.

I spent forty years advising people on their home mortgages, and if I learned one thing, it was that everybody has particular circumstances that dictate the best course of action. Most of the homeowners I advised were everyday working people. They were for the most part unsophisticated in real estate finance, or any finance for that matter. To advise them to take the equity out of their homes so they could use the cash for alternative investments would have been irresponsible. To begin with, these people had no handle at all on what would be a worthwhile investment that would suit their needs.

I only owned a few homes in my life, but in each instance i paid off my mortgage in about four years. I can't even imagine how much I saved in interest expense over those years. Having the home mortgage paid off left me with a sense of freedom. It was very much like getting a raise in my paycheck. Freeing myself and family of the monthly burden of a house payment was liberating, and it gave me a huge boost to my monthly cash flow so I could use my income in other ways.

I was a mortgage originator so I was supposed to encourage people to borrow. But I never did. I always felt that if I gave them good solid advice, advice that worked for me and gave me comfort, I was doing much more of a service. I also advocated for shorter term mortgages, fifteen or twenty years instead of thirty, again with the notion that home equity was worth budgeting for.

High leverage in home finance has a place for those who need it, but it does not necessarily fit into every person's profile.

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