Should I or Shouldn't I Pay Off My Mortgage?

Is paying off your mortgage the best financial bet? There are many cases for either alternative: keeping your mortgage while investing your existing funds in something with substantially higher yields, or paying off your mortgage to have one less bill every month. Many hold the belief that a mortgage repayment is the same as having a low-risk investment with a yield that's equal to the rate of your mortgage.

One important aspect of all this is the tax implications. The interest on your mortgage is always deductible, but the moneys earned from other investments are subject to various different taxation regulations.

If your investment is one that is going to be fully taxable and is only a percent or two higher, it would make better sense for you to simply pay off your mortgage instead. If your intended investment is one that is tax exempt than you can do a more direct comparison of the mortgage rate and the investment's yield rate. As long as the investment's rate is higher it will be more worthwhile than mortgage repayment.

Things can be more complicated than these two cut and dry scenarios however. What if your investment is taxable, but the tax payment is delayed or deferred? The longer the deferment is in this case, the lower the overall tax rate is going to be in the long run. Sitting down and running the numbers on this situation is a good thing to do, comparing the future values from when you will have to pay taxes.

In an ideal world you would have a legal investment lined up that will protect you from excessive taxation. Granted, situations like this often have limits, but using them to the fullest can be a prudent decision. The benefits of any such protected investment far outweigh the concept of having no mortgage bill to hound you every month.