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Rick plans to pay his home off in five years. However, he could pay it off tomorrow. Should he? He has $90,000 left on it at 5%. Dave advises Rick to go ahead and pay it off.

QUESTION: Rick in Missouri plans to pay his home off in five years. However, he could pay it off tomorrow. Should he? He has $90,000 left on it at 5%. Dave advises Rick to go ahead and pay it off.

ANSWER: You paid $4,500 in interest last year. That’s your tax deduction if you itemize. You’re in a 35% tax bracket, so that $4,500 write-off saved you $1,575. Here’s what you did. You sent the mortgage company $4,500 to keep from sending the government $1,500. That’s the nature of a tax deduction. You wouldn’t keep it just because that’s wise, because by definition it’s not wise. If you’ve got to pay a mortgage, you might as well take the tax deduction. In your case, you don’t have to pay a mortgage. You could write a check, pay it off, and be done. I would tell you to pay off the mortgage because financially, spiritually, emotionally, and a lot of other things, you’re going to prosper because of having a paid-off mortgage—not because I’m worried about national or international financial crises. The good news about a paid-off mortgage is if things are bad, it’s a good idea to have your mortgage paid off. If things are good, it’s a good idea to have your mortgage paid off. It’s really no-lose. If you get out there a few years and you absolutely hate it, you could always go get a mortgage. You’re going to trade the security of your savings for a different kind of security. When you walk into the backyard, the grass will feel different under your feet when you own it. You’re going to come from a more solid place emotionally and spiritually to make your decisions. You end up making wiser decisions.

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