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Paying Your House Off Versus Carrying a Mortgage

by Don Rafner, studioD

It's no fun sending off that mortgage check each month. It is fun to dream about what you could do with that money if you weren't giving it to your mortgage lender every 30 days. But as surprising as it might sound, paying off your mortgage loan early doesn't always make financial sense. Pros and cons are involved in paying off your mortgage loan. You need to consider them before making the decision.


Housing advocates have long touted the tax benefits of owning a home. And homeowners can deduct the mortgage interest they pay each year at income-tax time. According to the National Association of Home Builders, a family with a total yearly income of $80,000 and a mortgage of $180,000 at 5 percent interest will save $7,050 in taxes during the first years of owning their residence thanks to this deduction. If you pay off your mortgage loan, you won't pay any mortgage interest and you won't qualify for this tax deduction. However, depending on how expensive your home is, this deduction might not help you much or at all. The IRS in 2013 allowed married taxpayers filing jointly to claim a standard deduction of $12,200. Single taxpayers, or married taxpayers filing separately, could claim a standard deduction of $6,100. You only benefit from the mortgage interest deduction if that deduction is higher than the IRS' standard deduction. If you were married in 2013, then, you would have had to have paid more than $12,200 in mortgage interest the previous year to benefit from the mortgage interest deduction. If you live in a low-cost area where housing prices aren't high, then you probably won't gain much if anything from the interest deduction.

Other Debts

Homeowners dream of paying off their mortgage loans but often forget about their credit-card debt. This is a financial mistake. According to the Freddie Mac Primary Mortgage Market Survey, the average interest rate on a 30-year fixed-rate mortgage loan stood at 3.35 percent as of May 2, 2013. The average interest rate on a 15-year fixed-rate mortgage loan stood at 2.56 percent as of the same date. Compare that with the average interest rates on credit cards. Financial Web site Bankrate said that the average fixed-rate credit card carried an interest rate of 13.02 percent as of May 2, 2013, while the average variable-rate credit card came with an interest rate of 15.24 percent at the same time. The message is clear: Credit-card debt is far more expensive than is mortgage debt. This is why you should devote extra dollars to paying off your credit-card debt before you sink them into paying down your mortgage loan.


One benefit of owning a home is tapping the equity in your residence to help pay for your children's college education, pay down high-interest-rate credit-card debt or fund a major home-improvement project. Your equity is equal to the difference between what you owe on your mortgage loan and how much your home is worth. If you owe $150,000 on a home valued at $250,000, you have $100,000 in equity. You can then take out a home equity loan or home equity line of credit based on that $100,000 worth of equity and use the money or credit however you want. There's a reason to go with equity loans: They come with lower interest rates than do credit cards. Bankrate reported that as of May 1, 2013, the average interest rate on a home equity loan stood at 6.15 percent while the boorower on a home equity line of credit paid an average rate of 5.15 percent.

Eliminating Interest

One of the main benefits to paying down your mortgage loan early is to lower the amount of interest that you'll pay during the life of your mortgage loan. You might be surprised to learn that if you take out a $200,000 30-year fixed-rate loan with an interest rate of 5 percent, you'll pay a total of $188,511.57 in interest alone if you take the full 30 years to pay off this loan. However, if you pay down your loan faster, you can dramatically cut down on the amount of interest you pay.

About the Author

Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.

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