Eliminating mortgage payments not right for everybody

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Betty J. Neal is a certified financial planner and investment representative for Edward Jones Investments.|ret||ret||tab|

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As mortgage rates have tumbled to levels not seen in decades, millions of Americans have rushed to refinance their homes. Generally speaking, this is probably a good idea. |ret||ret||tab|

If you can lower your rate, you'll have more disposable income each month. |ret||ret||tab|

And if you invest this money, you'll really be putting the mortgage savings to good use. |ret||ret||tab|

But what if you don't want to simply refinance a 30-year mortgage? What if you want to replace your 30-year loan with one carrying a shorter term such as 15 years? Is this a good move? It might be but not necessarily from a financial point of view.|ret||ret||tab|

The question of switching from a 30-year mortgage to a 15-year one involves both financial and emotional issues and, as such, there is no easy answer. Let's look at the points to consider on both sides.|ret||ret||tab|

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Pros and cons|ret||ret||tab|

For many people, changing from 30-year note to 15-year mortgage is simply intuitive. |ret||ret||tab|

It just feels better to have a mortgage paid sooner. |ret||ret||tab|

For most of us, a life without house payments sounds pretty good. Plus, if you're in your mid-40s to mid-50s, you may be especially keen to have the mortgage paid as you enter retirement years. Furthermore, you can save many thousands of dollars in interest by paying the mortgage early.|ret||ret||tab|

Clearly, there are some intriguing reasons to go from a 30-year mortgage to a 15-year mortgage. |ret||ret||tab|

However, you can find some equally compelling factors for not making the switch. For example, it may be great to save all those thousands of dollars in interest payments but all the interest was tax deductible. |ret||ret||tab|

In fact, mortgage interest payments are the single biggest deduction most people will ever have. |ret||ret||tab|

So, once you've paid your mortgage, you may need to find new ways to save money on taxes.|ret||ret||tab|

Also, every extra dollar devoted to paying a mortgage early is a dollar you won't be able to invest. Of course, there's no guarantee on what type of investment return you might get. However, if you put these funds into a well-diversified portfolio containing high-quality investments, you could speed progress toward some important long-term financial goals such as a comfortable retirement.|ret||ret||tab|

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Investments vs. early payoff|ret||ret||tab|

Building investments also may provide you with more financial protection than paying the mortgage early. If you encounter a severe setback disability or job loss you can always fall back on the investments until you regain financial footing. |ret||ret||tab|

But if the bulk of your assets are tied to the house, you might be forced to refinance or look at other options such as a home-equity loan or line of credit. These aren't necessarily bad choices a home equity loan or credit line may be tax-deductible and the interest rate may be quite competitive. On the other hand, be sure you can afford the payments on these types of loans because you're using the house as collateral.|ret||ret||tab|

There are some sound reasons to pay a mortgage early, and some sound reasons to keep paying on a longer-term mortgage and invest the difference. There's no right decision but there's a decision that's right for everybody. Take the time to find it.|ret||ret||tab|

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