Is it a good idea to pay off your house as soon as possible – or should you refinance your mortgage to take advantage of lower interest rates, reduce your monthly payment and use the extra money for other needs, such as contributing to retirement accounts?
Is paying off your home early a good idea, tax-wise?
Chris Chen, certified financial planner, Waltham, Massachusetts: As you pay down the mortgage, the value of the mortgage deduction for tax purposes goes down, while at the same time income taxes go up, because you can no longer deduct the mortgage interest from your taxable income. This is not ideal from a tax perspective.
On the other hand, I happen to think that having an unleveraged asset — that is, a house without a mortgage — is a good thing. If you run into difficult financial circumstances, having a lesser debt burden reduces your break-even for life expenses, such that the impact of a layoff or other adverse financial event will be less painful.
Most people who are able to refinance have done so in the past several years as refinance rates have fallen and stayed low. If you are in the position that you can reduce your payments by refinancing, it is definitely worth consideration as rates continue to be low.