Pros and Cons to Having Mortgage Debt

If you have a house, you may be wondering if you should pay off your mortgage loan as fast as possible. While debt is usually to be avoided if possible, there may actually be some financial benefits to having mortgage debt. 

Here are some pros and cons of carrying mortgage debt.

Pro: Having a Mortgage Can Help Boost Your Credit Score

As long as the payments are made on time and in full, having a mortgage can actually benefit your credit score. That’s because one of the factors affecting your credit score is the mix of credit you have, and a mortgage can help improve that mix. But, if you pay off that loan at a quick rate, you may see your credit score drop because you no longer have the loan. 

Pro: A 30-Year Mortgage Might Leave You With More Liquidity

Paying down a 30-year mortgage as quickly as possible might seem like a financially savvy move. But, if you dump all your extra funds into paying off your mortgage, you may be in a tight spot if you face a financial emergency. 

It is much harder to tap your home’s equity than it is to pull money out of your bank account. Before going full steam on paying off your home, make sure you set aside three to six months’ worth of expenses in your savings. 

In addition, by directing extra funds to paying off your mortgage early, you lose the opportunity to earn money on investments with potentially higher returns than the amount of interest being paid on your mortgage.

Pro: Potential Tax Breaks

There’s still a potential tax benefit for having a mortgage. If you make enough to itemize your taxes, you can deduct any mortgage interest you paid on up to $750,000 in mortgage debt. But fewer people can take advantage of this deduction now as a result of changes to the tax law. The new standard deduction for 2019 is $24,400 for married couples and $12,200 for individuals. 

Con: It Puts Pressure on You in Retirement

Having mortgage debt in retirement can put a strain on your savings. To increase the chances that your money lasts through your retirement years, it is wise to not have a mortgage payment in retirement.

Entering retirement without a mortgage payment provides a sense of financial security and if you pay off the mortgage before you retire, you free up that money each month to go toward other areas in your budget.

Con: Your House Will Cost You More in the Long Run

When you borrow money to buy a house, not only do you have to pay back the amount you borrowed, but you also have to pay interest that accrues on the loan. The longer it takes you to pay back your mortgage, the more interest you’ll pay. By paying that balance off early, you eliminate years of added interest payments charged for the loan. 

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