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To Pay Off Or To Save |
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Ms. Lank: I was interested in the letter where you advised the reader to pay down his mortgage. I've been thinking about paying off my mortgage, but I don't know if there is a formula to help me decide if this is a good idea. I'd lose the tax deduction on the mortgage interest. On the other hand, I won't have to pay taxes on my savings account interest once I withdraw the money. Is there a simple formula to help decide? My feeling is to just pay it off |
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Everyone's situation is a different -- income, expenses, assets, job security, age, health. No formula could apply to everyone. There are a few guidelines, though: The best payback for investing spare cash is in getting rid of high-interest credit card debt (assuming you don't turn around and run it up again). Next, paying down or paying off a mortgage does represent a guaranteed long-term no-risk return on your investment. But it's also essential to have at least six months' living expenses in savings that can be easily tapped in an emergency. You wouldn't want your last dollar tied up in your home. In any event, as you realize, the income tax aspect of the decision doesn't matter enough to be taken into consideration. |
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Edith
Originally published on January 8, 2005 |
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