# What are the benefits of paying off your house?
**URL:** https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211
**Category:** Factual Questions
**Created:** [April 26, 2016, 8:03pm UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211 "2016-04-26T20:03:15Z")
**Posts on this page:** 20
**Page:** 3
### Author:  [@Corry\_El](https://boards.straightdope.com/u/Corry_El)
#### Post date: [April 27, 2016, 1:42pm UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/41 "2016-04-27T13:42:14Z")
PS: another wrinkle for some homeowners is where mortgages are non-recourse and there are significant uninsurable risks. For example in parts of California earthquakes are a serious risk and not practically insurable. And in CA banks cannot go after assets of mortgage borrowers other than the house, ie they are non-recourse. In that situation owning a $500k house outright is taking $500k risk that the area is so devastated by a quake that property values go to ~$0. If you have a $400k mortgage, that portion is the bank’s risk. This would not apply if the mortgage was recourse, ie the bank could sue you for $400k in other assets of yours to recover their loss. Mortgages give banks recourse in most US states, though the non-recourse states represent a big chunk of the population (including the two most populous states, CA and TX).
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### Author:  [@wguy123](https://boards.straightdope.com/u/wguy123)
#### Post date: [April 27, 2016, 3:19pm UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/42 "2016-04-27T15:19:44Z")
Like what has been said many times in this thread:
- My wife and I have never been able to itemize so no super awesome deduction to begin with. We had others tell us that we needed to buy a much bigger house to get the deduction. :rolleyes:
- Saved a fortune in interest in paying our 30 year mortgage in 12 years
- We are now saving a huge amount. That mortgage + extra payment we were doing every month now goes to savings. We’ll be able to buy a retirement place outright. And then sell our current house or use it as a rental
- If we do hit hard times, all we have to do is pay our property tax. Plus, we now have plenty of savings. We could probably retire at this point if we had to (mid-40’s)
- Being completely debt free is awesome. We don’t give two shits about our credit rating even though it is very high.
Neither of us are huge wage earners but we aren’t low. We are fairly frugal although we could spend less.
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### Author:  [@Joey\_Tightlips](https://boards.straightdope.com/u/Joey_Tightlips)
#### Post date: [April 27, 2016, 3:20pm UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/43 "2016-04-27T15:20:51Z")
> [@Doug\_K](#):
>
> You shouldn’t be. As [this article from 2007](http://taxfoundation.org/article/most-americans-dont-itemize-their-tax-returns) says, fewer than 2 out of 5 tax returns itemize deductions.
I was surprised as well. I still save by itemizing deductions even _after_ paying off my mortgage. I guess it’s all about the state taxes.
I just came in to vote in favor of paying off if you can. _ **Maybe** _ you’d make more money keeping your mortgage and investing the difference, but you’re guaranteed to give money to the banks by keeping it. The look on the banker’s face when I went in to ask for a certified check to pay off the balance of my mortgage (at 35 years old) was worth everything.
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### Author:  [@gazpacho](https://boards.straightdope.com/u/gazpacho)
#### Post date: [April 27, 2016, 3:42pm UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/44 "2016-04-27T15:42:51Z")
> [@Joey\_Tightlips](#):
>
> I was surprised as well. I still save by itemizing deductions even _after_ paying off my mortgage. I guess it’s all about the state taxes.
It is also about how much money you make. I looked up the CA state tax rate. A single person needs to make about $97000 to pay $6300 in state tax. In some states and the non big city coastal parts of California $97,000 is a lot of money, even in the coastal cities that is above the median household income.
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### Author:  [@Surreal](https://boards.straightdope.com/u/Surreal)
#### Post date: [April 27, 2016, 3:49pm UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/45 "2016-04-27T15:49:20Z")
What’s interesting is that many people wouldn’t hesitate to use their savings to invest in the stock market rather than pay down their mortgage, but very few would be willing to borrow against their home in order to invest the proceeds in the equities. Yet the two situations are nearly equivalent.
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### Author:  [@md2000](https://boards.straightdope.com/u/md2000)
#### Post date: [April 27, 2016, 3:55pm UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/46 "2016-04-27T15:55:51Z")
> [@Corry\_El](#):
>
> …
> Above someone said it would be ‘very very rare’ to find an investment paying more than the mortgage rate but this is surely not true. The after tax return on stocks has generally averaged well above the rate on mortgages, and taking taxes into account would tend to make this even more true. There’s more risk to stock investments than mortgages (from the lender’s POV), so this should be true.
> …
The keyword right there is “averaged”. If you are a confident and crafty market player, then by all means mortgage the house to the hilt and play the market. If like me, your investment process is “buy the better mutual funds offered by your bank” then maybe a mortgage is a better investment.
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### Author:  [@spifflog](https://boards.straightdope.com/u/spifflog)
#### Post date: [April 27, 2016, 3:58pm UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/47 "2016-04-27T15:58:24Z")
> [@rbroome](#):
>
> IAnd lastly and most importantly-home insurance. If you have a enough cash to self-insure, consider that route. It requires care, but don’t hold on to home insurance just because. Figure out what it would take to repair your house from conceivable damages. That is after all what the insurance company does. They put aside enough cash to cover losses. If you can do the same, you can save yourself a lot of money. This assumes you have the self-discipline to keep the money in reserve. But don’t just assume that “home replacement value” insurance is a stress-free way to deal with accidents. The insurance company will be quite willing and even anxious to impose considerable stress on you, in the form of offering you quite a bit less in replacement value than the contractor says you need, if you ever need to make use of the insurance. They certainly don’t just pay whatever the contractor bills. They have their formulas and ‘discussions’ will follow. Self-insure and at least you cut out the middle-man in those discussions. Of course this has nothing to do with liability insurance. That is always needed and insurance companies will offer that insurance separately from causality. At least mine will. Your Insurance May Vary. 🙂
If I understand this correctly, I don’t agree with this.
As we know, if you have a mortgage, your bank will require you to have homeowners insurance.
When I paid off my house, I thought about this for a moment before I decided it was a smart move to keep the insurance. My home is worth about $500k (here in DC) and my insurance is about $600 a year. God forbid the thing burns down or has significant issues. No matter how many years I but that $600 into a mutual fund, it’s never going to equal anything close to $500k. I understand how insurance works. But the piece of mind with worth the 600 bones. Your mileage may vary.
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### Author:  [@CurtC](https://boards.straightdope.com/u/CurtC)
#### Post date: [April 27, 2016, 5:14pm UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/48 "2016-04-27T17:14:22Z")
> [@Chessic\_Sense](#):
>
> Anyone not have student loan interest? Anyone?
I graduated from college in 1983.
> [@Joey\_Tightlips](#):
>
> I was surprised as well. I still save by itemizing deductions even _after_ paying off my mortgage. I guess it’s all about the state taxes.
By the way, if you’ve paid off your mortgage (I did about ten years ago), there’s a trick you can do with itemized deductions that may save you a lot of money. My biggest deduction is real estate tax, which is $8k/year on my main house and $4k/year on my lake house. That’s $12k in real estate taxes. My other deduction is charity, maybe $3k per year. I don’t have any others.
So instead of taking $15k in deductions each year, I pay may real estate taxes twice in the same calendar year, every other year. They’re due at the end of January, but you can pay them a month earlier in December, so one year I pay in January and again 11 months later in December. So in that year, I have itemized deductions of $12k plus $12k plus $3k, or $25k. On the in-between years, I take the standard dedcution of $13k.
If you add up my deductions for two years, in the straightforward way of doing it, I’d be itemizing $30k total for two years. But doing it my way, I get to deduct $38k for two years. That’s an extra $8k of deductions, which saves me thousands of real dollars.
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### Author:  [@Malthus](https://boards.straightdope.com/u/Malthus)
#### Post date: [April 27, 2016, 6:39pm UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/49 "2016-04-27T18:39:50Z")
> [@Joey\_Tightlips](#):
>
> I was surprised as well. I still save by itemizing deductions even _after_ paying off my mortgage. I guess it’s all about the state taxes.
>
> I just came in to vote in favor of paying off if you can. _ **Maybe** _ you’d make more money keeping your mortgage and investing the difference, but you’re guaranteed to give money to the banks by keeping it. The look on the banker’s face when I went in to ask for a certified check to pay off the balance of my mortgage (at 35 years old) was worth everything.
Yeah, I’m skeptical about these strategies that depend on earning great returns on other investments. My investments haven’t been so hot.
The great thing about paying off your mortgage, in my opinion, is that if you have decided to buy a house rather than rent, making your payments to the principal has a guaranteed return - you are guaranteed to save the amount you would otherwise pay in interest.
This very predictable (indeed, certain) rate of return is attractive …
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### Author:  [@Slash1972](https://boards.straightdope.com/u/Slash1972)
#### Post date: [April 27, 2016, 6:48pm UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/50 "2016-04-27T18:48:03Z")
> [@Ruken](#):
>
> Remember that people itemized for other reasons. DC taxes are high enough that a single person starts hitting the threshold around $100k of income just based on local taxes alone. If you make any charitable donations, it’s even lower. And that’s for a renter.
>
> I wish I could buy a house for $189k. I’ve been looking in and around DC, and the pickings are slim under $500k.
>
> I’ve seen arguments for removing the deduction for state taxes, but that’s probably a discussion for another forum.
What do you consider “around” DC? Still inside the Beltway?
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### Author:  [@wguy123](https://boards.straightdope.com/u/wguy123)
#### Post date: [April 27, 2016, 6:52pm UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/51 "2016-04-27T18:52:03Z")
> [@Malthus](#):
>
> Yeah, I’m skeptical about these strategies that depend on earning great returns on other investments. My investments haven’t been so hot.
>
> The great thing about paying off your mortgage, in my opinion, is that if you have decided to buy a house rather than rent, making your payments to the principal has a guaranteed return - you are guaranteed to save the amount you would otherwise pay in interest.
>
> This very predictable (indeed, certain) rate of return is attractive …
Very true. I was able to see to the penny how much I would save by paying off early (around $65,000 on a small mortgage). And since I paid off my 30 year mortgage in 12 years, I have 18 years of payments (plus the extra monthly I was paying down the principal) to invest.
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### Author:  [@epbrown01](https://boards.straightdope.com/u/epbrown01)
#### Post date: [April 27, 2016, 7:56pm UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/52 "2016-04-27T19:56:54Z")
> [@Malthus](#):
>
> Yeah, I’m skeptical about these strategies that depend on earning great returns on other investments. My investments haven’t been so hot.
In Chicago, people seemed to have a double fantasy. Not only would having a mortgage free up money for investing that would turn into millions, but you also didn’t need to worry about all the interest you were paying because your house was going to increase in value and hey, the interest was a tax write-off. The reality always worked out way different for my friends.
Around here (Ky), homes are cheap enough that it’s not worth the bother - my house was less than my last BMW (which, ironically, I sold to buy it for cash). It won’t increase in value over the next 20-odd years, but not having a note frees up a huge chunk of income. Property taxes here are low enough I could lose my job keep this place just by collecting soda cans. There’s peace of mind in that.
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### Author:  [@Saint\_Cad](https://boards.straightdope.com/u/Saint_Cad)
#### Post date: [April 27, 2016, 8:21pm UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/53 "2016-04-27T20:21:14Z")
> [@Urbanredneck](#):
>
> Is the benefit of paying off your house worth losing the income tax deduction? What are the overall benefits of paying off your house?
I think you are not clear on the mathematics of a deduction. Let’s say I make $70,000/year and spent $4000 on mortgage interest that year. With that income, I end up getting 25% of the interest cost back i.e. $1000 deducted off my tax due. After the rebate I still spent $3000 in interest payments.
Effectively your question is is it better to spend no money on mortgage interest (by having it paid off) or some money on mortgage interest. I’ll vote for spending no money.
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### Author:  [@Malthus](https://boards.straightdope.com/u/Malthus)
#### Post date: [April 27, 2016, 8:40pm UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/54 "2016-04-27T20:40:59Z")
> [@epbrown01](#):
>
> In Chicago, people seemed to have a double fantasy. Not only would having a mortgage free up money for investing that would turn into millions, but you also didn’t need to worry about all the interest you were paying because your house was going to increase in value and hey, the interest was a tax write-off. The reality always worked out way different for my friends.
>
> Around here (Ky), homes are cheap enough that it’s not worth the bother - my house was less than my last BMW (which, ironically, I sold to buy it for cash). It won’t increase in value over the next 20-odd years, but not having a note frees up a huge chunk of income. Property taxes here are low enough I could lose my job keep this place just by collecting soda cans. There’s peace of mind in that.
Heh, the conditions here in Toronto could not be more different: real estate here seems to have been in a “bubble” - for my entire adult life! My house has doubled in value since I bought it, and when I bought it, people were telling me not to buy because prices were insanely high _then_.
However, this local real estate price insanity could not easily have been predicted. Almost everyone thought prices would stabilize or deflate. It is actually fun, looking back, to see how wrong every reasonable prediction was. 😉
No doubt at some point there has to be a market correction. Or at least, people keep saying, and it seems reasonable …
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### Author:  [@Ruken](https://boards.straightdope.com/u/Ruken)
#### Post date: [April 27, 2016, 8:50pm UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/55 "2016-04-27T20:50:44Z")
> [@Slash1972](#):
>
> What do you consider “around” DC? Still inside the Beltway?
30 minutes from L’enfant Plaza during rush hour. I have a low commute tolerance. My coworkers who live in Leesburg, Columbia, etc., obviously pay less
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### Author:  [@CurtC](https://boards.straightdope.com/u/CurtC)
#### Post date: [April 27, 2016, 9:54pm UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/56 "2016-04-27T21:54:12Z")
> [@Saint\_Cad](#):
>
> I think you are not clear on the mathematics of a deduction.
OK, let’s see where this goes…
> [@](#):
>
> Effectively your question is is it better to spend no money on mortgage interest (by having it paid off) or some money on mortgage interest. I’ll vote for spending no money.
But wait - think of the mathematics!
The money to pay off the mortgage isn’t going to appear out of thin air - it’s money that if you didn’t pay off the mortgage, you’d have in an account somewhere earning interest or dividends or hopefully appreciating in stock values.
So the question is whether it’s better to spend no money on mortgage interest and make no money on investment income, or to spend some on mortgage interest and make money on investment income. And that’s not a clear-cut, easy to answer question.
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### Author:  [@Thudlow\_Boink](https://boards.straightdope.com/u/Thudlow_Boink)
#### Post date: [April 28, 2016, 12:30am UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/57 "2016-04-28T00:30:52Z")
> [@CurtC](#):
>
> So the question is whether it’s better to spend no money on mortgage interest and make no money on investment income, or to spend some on mortgage interest and make money on investment income. And that’s not a clear-cut, easy to answer question.
True, but my money’s on the former, because of what **Chronos** pointed out:
> [@Chronos](#):
>
> And such investments are very, very rare. If they were common, then the bank would be buying them, instead of giving you a loan at that rate.
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### Author:  [@watchwolf49](https://boards.straightdope.com/u/watchwolf49)
#### Post date: [April 28, 2016, 2:24am UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/58 "2016-04-28T02:24:44Z")
Let’s look at the opposite side of this:
If I have cash, and loan it out in a mortgage at … say 3.5% and 30 years. That’s not a bad investment, maybe not the best return but the loan is _secured_ and mortgages tend to be of low risk of default. Perhaps the return is enough to retire on. The problem is that the guy I loaned the money too got wise and borrowed a mess of money from his parents at 0.1% over 50 years. All of a sudden, I have to live off the capital without the benefit of interest. That’s a bad thing, I was planning to live the rest of my life without financial worry.
In Summary: Early pay-off is bad for the mortgager. Ergo, early pay-off is good for the mortgagee.
The work-around here is to pool your money with other mortgagers so that _your_ own money is spread around 20 or 30 mortgagees. So a small percentage will pay off the mortgage early but you’re only at risk for that small percentage of your investment … [giggle] … something like a Mortgage Backed Security … the best of both worlds as it were.
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### Author:  [@rbroome](https://boards.straightdope.com/u/rbroome)
#### Post date: [April 28, 2016, 2:56am UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/59 "2016-04-28T02:56:48Z")
> [@spifflog](#):
>
> If I understand this correctly, I don’t agree with this.
>
> As we know, if you have a mortgage, your bank will require you to have homeowners insurance.
>
> When I paid off my house, I thought about this for a moment before I decided it was a smart move to keep the insurance. My home is worth about $500k (here in DC) and my insurance is about $600 a year. God forbid the thing burns down or has significant issues. No matter how many years I but that $600 into a mutual fund, it’s never going to equal anything close to $500k. I understand how insurance works. But the piece of mind with worth the 600 bones. Your mileage may vary.
clearly your situation is different. Here my house is worth half that and my insurance cost is three times that. So my mileage varies. 🙂
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### Author:  [@md2000](https://boards.straightdope.com/u/md2000)
#### Post date: [April 28, 2016, 3:31am UTC](https://boards.straightdope.com/t/what-are-the-benefits-of-paying-off-your-house/753211/60 "2016-04-28T03:31:11Z")
One thing I’ve seen discussed about the US mortgage situation - the i_nterest_ is deductible. (Yes?) This means that toward the end of the paydown, you are still making that example $4,000 payment, but only half of it is interest. So you can only deduct $2,000 giving a deduction of $500 in taxes paid, not $1,000. the result we’ve heard up here is that many people continually refinance to keep the principal (and interest) as high as possible. That’s a perverse reason to go into debt, skewed by tax policy.
I should also point out that a benefit of Canada’s policy is that interest is not deductible, so the house is not considered an investment, and (for a primary dwelling) therefore no capital gain tax to be paid on the sale of it.
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