Many investors are contemplating a big financial question these
days concerning their homes.
The debate about whether it makes sense to pay off your mortgage
or not really depends on each person's particular situation. As
people get older, their appetite for risk slowly wanes. Despite our
best efforts on Dividend.com to stress the long-term positives of
investing in dividend-paying stocks, many individuals still have
money parked in money market accounts (which can't even keep up
with inflation) and abhorrently low CD rate accounts.
For those who are simply terrified of any risk, paying down your
mortgage based on where interest rates have been - and likely will
continue to be for the next several years - makes sense. For
example, if you're paying a 6% mortgage and leaving your money in a
low-interest account (essentially earning you nothing), your best
strategy could be to pay off your mortgage, thus erasing the 6%
APR. The potential loss of any sort of inflation hedge won't matter
because of the piece of mind you'll be getting.
For others, I would recommend looking at other ways to cut down
debt, especially where the interest rates are much higher than
mortgages, such as credit card debt. Also, if your company offers
it, take full advantage of tax-deferred retirement options like a
401(k) matching benefit. Even looking at your current life
insurance situation makes sense - ensure that you have adequate
life and health insurance based on your current situation. You
could even consider disability and long-term care coverage as other
places to wisely spend your money, instead of giving up the yearly
tax deduction you receive as a result of your mortgage.
At the end of the day, there are several arguments against
paying off your mortgage, but the decision will always involve many
factors even beyond the items I mentioned above. Of course, our
recommendation is always to grow your money over the long term in
high-quality dividend-paying stocks.
Paul Rubillo is the founder and CEO of Dividend.com.
Be sure to visit our complete recommended list of the
Best Dividend Stocks
, as well as a detailed explanation of
our ratings system here