As you approach the end of your time in the workforce and look ahead to retirement, you may feel the urge — or even the obligation — to pay down a majority of your debt while you still have discretionary income. While this is an excellent idea in some regards, it may lead you to make some unwise financial decisions — such as paying off your mortgage prior to the end of your loan term.
You may find yourself scratching your head at that previous statement, as you likely believe carrying your long-term mortgage into retirement is more a burden than a benefit. However, it is a fact that mortgages fall under the umbrella of good debt — or debt that grows in value or even income over time.
With that in mind, let us explore additional reasons why you may want to keep your mortgage.
Your mortgage hedges inflation
Holding a mortgage with a fixed interest rate will work in your favor, especially considering the impact of inflation over the course of 30 years. Therefore, as your home increases in value, you are technically paying less in the long-run, as your payments remain the same.
Additionally, banks take on all of the risk associated with your mortgage, as they are unable to call the loan as they would with a bond or other investment vehicle that favors the issuer. So, you are secure in your loan and are generating more value.
You will not have access to interest deductions
It is no secret that your mortgage’s interest is the key to receiving sizeable tax deductions. However, by paying off your mortgage prior to the end of its term, you will be forfeiting that privilege. Losing this tax deduction may result in you paying more taxes and even being pushed into an entirely new tax bracket — thus leading you to paying even more taxes.
You may lose future income
Unless your mortgage wields extraordinarily high interest rates, you are likely making more back from your mortgage than you are paying, especially if you are also investing money elsewhere.
To elaborate, let us say you are paying down your mortgage according to your loan schedule — making monthly payments on time and in full. Depending on the return rate of your other investments, you will likely see your portfolio nearly double in value by the time you make your final scheduled mortgage payment.