We've been toying with the idea of paying off our mortgage for a few years. But the case against doing so convinced us that we should keep making our monthly payments. A home loan, after all, provides us with a hefty tax break. And with interest rates so low, we should theoretically also be able to make a better return on our money by investing it in the stock market.
Still, these arguments and others, which I'll get to later, weren't enough to keep us from pulling the trigger on our mortgage a couple of months ago.
First let me say that our situation may be a little unique. We actually have a fair bit of money in savings but struggle on the cash flow front now that we have a second baby and our expenses have gone up considerably. By paying off our mortgage we freed up more than $2,000 a month that we can put toward things like child care.
Now let's get back to that conventional wisdom. The point about taxes is certainly valid, especially since we tend to get few write-offs. (We always end up paying that annoying Alternative Minimum Tax (AMT).) But let's not forget that the tax break isn't free. We still end up shelling out more in interest on our mortgage than we save in taxes.
If we had the Warren Buffett touch and made handsome returns in the stock market, then I do concede that we would be better off keeping our mortgage. But to be honest, we suck at investing. While we invest some of our money on our own, the rest is trusted to Citibank. While this should help, even the professionals I pay continue to lag the S&P 500. So hedging my bets and using some of our cash to pay off our home loan doesn't feel like a lost opportunity to me.
Experts also point out that homeowners need to preserve their cash and have some liquidity in case of an emergency or job loss. We're lucky and still have a safety cushion. We bought our apartment a decade ago before real estate prices got silly. So we really weren't looking at a huge mortgage to begin with.
Finally, someone did ask me a question I didn't have the answer to. Would paying off a mortgage hurt my credit score or make it more difficult in the future to take out a new home loan? I decided to call Craig Watts over at Fair Isaac, the company that created the FICO credit score, for his take.
The good news is that paying off my mortgage may have actually helped my credit score. That's because lenders like to see consumers pay off their obligations. And unlike bad credit moves that stay on your credit report for seven years, positive information can remain for 10 years or possibly even longer.
So am I crazy? I don't think so. I love the fact that my monthly housing costs (including my taxes and utilities) now mirror what I paid back when I was living alone in a studio in my early 20s.
If you had the savings, would you consider paying off your mortgage?
The Front Door image by Wharman, courtesy of CC 2.0.
Stacey Bradford is the author of The Wall Street Journal. Financial Guidebook for New Parents.