Is listening to Suze Orman and Dave Ramsey regarding paying off your mortgage a good idea?
After the closing, I always stay in touch with my clients, providing advice and financial guidance. Over my thirty-year career, many of my borrowers have proudly bragged they were adding dollars to their monthly payments in order to pay off the mortgage faster and save interest over the life of their loans. You can imagine how surprised they were when I told many of them this was NOT a good idea.
These days, most homeowners have a mortgage rate below 5% (assuming they have a mortgage at all). Some were lucky enough to lock when rates were in the two’s! Most of these borrowers can claim their mortgage interest as a deduction on their tax returns, thus further reducing their “effective mortgage rate.” Is pre-paying their mortgage really the best use of their funds?
I ask them:
• Have you spoken with your Financial Advisor about this?
• Are you maximizing your retirement contributions?
• Do you have a 529 plan for your children?
• Is there anywhere else you can invest this money where you can earn a return that is greater than the interest you are paying?
For many of these borrowers, I explain if they invested this money elsewhere, there’s a good chance they can earn more than the mortgage interest they would be saving. With regular monthly investments compounded over the years, they could still use these funds to pay off their mortgage later on, while still maintaining the benefit of their tax deductibility until that time comes. In addition, they may find that after paying off their mortgage, they still have money in their investment left over!
There are many wealth-building strategies I share with my clients, strategies the average loan officer at “your bank” does not know or even understand. These are yet more reasons why our motto is, “The Right Mortgage Today, for your Family’s Wealth and Security Tomorrow.”
Warren Goldberg is President of Mortgage Wealth Advisors, a Certified Mortgage Planning Specialist®, and a published author. His interviews include Blog-Talk Radio, Newsday, The Daily News, Anton Press, and the Long Island Herald. Since 1992, he’s been sharing his financial knowledge and wealth-building strategies, including how to properly use your mortgage as a financial tool. His clients regularly express their trust and appreciation by recommending friends and family call when in need of mortgage, real estate, and financial guidance.