Should You Pay off Your Los Angeles Home?

Originally posted on March 02, 2011

Should You Pay Your Los Angeles Mortgage off Early?  Tax Benefits of a Los Angeles MortgageA recent article in the Los Angeles Times addressed the interesting topic of whether you should pay off  the mortgage on your home early.

In today’s roller coaster ride on the stock and housing markets people are worried about their monthly expenses.  There is no security in holding the debt of a mortgage on a Los Angeles home when there are few if any options to make easy money to cover that mortgage.  In high times you knew you were covered by the growth in home equity and the booming stock market.

It would seem tempting to pay off that loan on your Los Angeles home, hoping that by the time you get to retirement you will be free and clear. Or you just don’t like making those monthly payments.

Before you decide, here are some reasons to consider before paying off that mortgage:

Financial considerations

  • Do you have credit card debt, maybe a car loan?  Those should be addressed first, especially the high interest ones.
  • If you pay off the mortgage do you still have 6 months living expenses in cash?
  • Do you have money put aside in case of emergencies?
  • Money pulled out of a non-Roth IRA will be taxed at ordinary income rates so, unless you are retired or in a low income bracket, this would be counter-productive.

How long do you intend to stay in your Los Angeles home?

If you think you may move in the next few years, certainly don’t pay off the mortgage.  Market conditions being what they are, you don’t want to be stuck with a home that is paid off and on which you may not be able to get all your money out.

Is it worth the interest deduction any more?

At the beginning of the mortgage your tax deduction is going to be higher.  As you start to pay off the principal the savings are less.  And, if you are nearing retirement, or retired and close to the end of your mortgage payments, then the tax deduction should not stop you from paying off your Los Angeles mortgage, especially since your tax bracket is most likely going to significantly reduced.

Calculate your return on investment

Based on your tax rate and the present low mortgage interest rates, what is your return if you pay that loan off?  Is it 3%, 4%, more?  Where can you get a higher rate of return if you invest that money?

Do the math!  Your accountant should be able to help you decide.

But bottom line, it is about your comfort level.  Some people don’t want to be burdened with monthly payments of any kind, and if you have the money burning a hole in your pocket…..

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(4) Comments

  1. Jane – You’ve given a very even handed discussion on the things to consider when deciding whether or not to pay off a mortgage. It’s a tough decision to make and yet you’ve given clarity.

  2. Hi Jane, There are many factors that come into play when considering paying off your mortgage. I’ve recently had several investors or clients buying second homes that want to use their cash. At their ages, I encourage them to obtain mortgages rather than spend that cash–mortgage money is SO cheap right now, why not? Those reaching retirement, however, may wish to consider the payoff route though–again, depending upon the circumstances.

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