ForeclosuresMass - ForeclosuresMass Monthly - Debbie Siegel's Mortgage Minute - Should You Pay Off Your Mortagage Early? (February 2008)

Like most financial decisions, deciding whether or not pay off your mortgage early is not always that easy. Tax breaks, your goals, and the age of your mortgage are just three of the things that play into the equation.

If you're in the position to pay off your mortgage early (congratulations, by the way), ask yourself these five questions to see if doing so is your best financial move.

1. Is your mortgage fairly new? If so, you have many years of mortgage interest ahead of you, so you'll enjoy tax benefits for years to come. Because much of your payment is interest right now, you have lots of interest to write off. Paying off your mortgage may not be in your best interest because you will lose out on the deductions -- especially if you're in a high tax bracket. Conversely, if you have less than 10 years left on your mortgage or are in a low tax bracket (or both), you are not getting much of a deduction, so paying it off may be more beneficial to you.

2. Are your other important accounts funded? How are your retirement and children's college accounts? If you're paying off your mortgage early to the exclusion of these other important accounts, you're making a mistake. You need those investments as much as you need your home. When you're faced with these big expenses, you don't want all your money tied up in your home because it's the least liquid of all of your investments.

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3. Have you done the math? Figure out how much you'll save over the life of the loan, and compare that to the tax savings. Also think about other investments you could make with the money (mutual funds, bonds), and estimate their value as best you can. Is it worth it?

4. Is the emotional appeal of owning your home outright more important than other considerations? If so, do what you need to do. The changing whims of the real estate market can be stressful for a lot of people. Owning your home outright may alleviate much of that stress. Your emotional security is worth more than a financial equation.

5. Do you have debt? Your mortgage is really the cheapest money you can get. Don't accelerate your mortgage, which has an interest rate around 7%, instead of digging yourself out of credit card debt, which can be as high as 20%!

If you do decide that paying your mortgage off early is right for you, determine the best way to do so. A popular method is making a payment every two weeks. However, you can end up stuck with a lot of fees - so it pays to ask before you accelerate payments. The best method is simply to increase your monthly payment. Let's say you want to make one additional mortgage payment a year. Take the amount of one payment and divide it by 12. Then, add that amount to your monthly payment.

Be sure your lender knows that the extra money is for your mortgage principle. And find if there is any fee for paying early.

Got questions about real estate financing? Contact Debbie@westchester-mortgage.com or 617-965-1236. She'll consider them for inclusion in a future column. Debbie Siegel is president of Westchester Mortgage in Newton, Mass. She is licensed in several Northeastern states.