Posted by: s001 March 27, 2018
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You need to pay off your house before you start throwing extra money at your 401(k).
There are a few reasons:
Mortgage debt is still debt.
If you get sick or lose your job, would you rather have a mortgage payment or be completely debt-free? Mortgage debt is still debt and always remember debt is the risk. Your house represents your last big hurdle in your financial journey. Don’t fall apart just before the finish line. Pay off the house, and you’ll be complete, totally, 100% debt-free!
The “tax advantage” is a joke.
If someone warns you not to pay off your house because of the tax advantage, it is a complete joke or that person does not understand math. Let's say you pay $10,000 in interest on a $200,000 mortgage. That saves you roughly $2,500 in taxes per year. That might sound good and well when tax time comes around, but stop and think about the math for a minute. All you’re doing is sending $10,000 to the bank instead of $2,500 to the IRS. That’s not a good reason to keep a house payment.
Your most important wealth-building tool is your income.
A lot of people are paying somewhere between $500–1,000 on their monthly mortgage. That’s a pretty decent chunk of change. But think about this: When your debt is gone, you’re free to keep more of your money. How much money could you put into your 401(k) and retirement investments if you didn’t have to make a house payment each month? You could supercharge it in no time! Nothing kicks your retirement savings into high gear like paying off the house.
The last thing you want to carry with you into retirement is a house payment. Lugging that mortgage around will turn the American dream into a nightmare.
There are a few reasons:
Mortgage debt is still debt.
If you get sick or lose your job, would you rather have a mortgage payment or be completely debt-free? Mortgage debt is still debt and always remember debt is the risk. Your house represents your last big hurdle in your financial journey. Don’t fall apart just before the finish line. Pay off the house, and you’ll be complete, totally, 100% debt-free!
The “tax advantage” is a joke.
If someone warns you not to pay off your house because of the tax advantage, it is a complete joke or that person does not understand math. Let's say you pay $10,000 in interest on a $200,000 mortgage. That saves you roughly $2,500 in taxes per year. That might sound good and well when tax time comes around, but stop and think about the math for a minute. All you’re doing is sending $10,000 to the bank instead of $2,500 to the IRS. That’s not a good reason to keep a house payment.
Your most important wealth-building tool is your income.
A lot of people are paying somewhere between $500–1,000 on their monthly mortgage. That’s a pretty decent chunk of change. But think about this: When your debt is gone, you’re free to keep more of your money. How much money could you put into your 401(k) and retirement investments if you didn’t have to make a house payment each month? You could supercharge it in no time! Nothing kicks your retirement savings into high gear like paying off the house.
The last thing you want to carry with you into retirement is a house payment. Lugging that mortgage around will turn the American dream into a nightmare.