Mortgages: What's Wrong with Prepaying?

When it comes to mortgages, this may be the most asked question there is when it comes to savings, taxes and retirement – "Should I pay off my mortgage early?"

Your home is not an asset like a car where you pay a certain amount, it depreciates, you pay it off and you’re done. It acts more like an investment that you’ve borrowed money to invest in. It not only has intrinsic value, it (hopefully, eventually) will go up in value, and sometimes, as we’re experiencing, it goes down in value.

It also has value beyond money—you live in it. It allows you to be comfortable while you work and live your life. It’s also vulnerable to wild market swings, as we’ve been experiencing over the past year or so, and the national average return on home value is incredibly low for an investment—somewhere between 3 and 5 percent.

Rather than prepaying your mortgage, your money will serve you better by paying off credit card debt, saving up an emergency fund that will help you avoid losing your home should you lose your job, or growing in a well-diversified retirement portfolio which should earn you a conservative average of 8 percent over at least 20 years.

Prepaying your mortgage may make you feel better, but not prepaying your mortgage is more likely to enable you to live better.

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