I consider myself to be a fiscal conservative. But can you be conservative and still carry mortgage debt? Of course, mortgage debt in and of itself isn’t bad. Certainly our tax code rewards mortgage debt, unlike other debt such as credit card debt. However, the question becomes whether home owners should aggressively pay down their mortgage or limit the size of their mortgage when buying a new home.
Ultimately the question becomes whether your money will earn a greater return in another investment than the interest on your mortgage. If your rate of return (ROR) is higher than the interest rate on your debt, it likely does not make sense to pay down your mortgage. Additionally, when you consider the historically low interest rates, you could very well find dividend bearing stocks or bonds that pay a higher return than 4.00%. [WSJ: noted that 30 fixed interest rates have fallen below 4.0%].
The New York Times took a look at this issue and added this quantitive analysis:
“Then there are the tax implications of losing the mortgage deduction. These are only relevant . . . to owners whose principal is less than two-thirds [of the mortgage] paid off. Once the two-thirds threshold has been reached, the interest deduction, if any, is small and doesn’t justify keeping the mortgage.”
The above quoted expert explains that once two-thirds of the mortgage has been paid off, there is very little remaining interest and thus a small amount to deduct. Again this analysis is contingent upon your interest rate and your expected rate of return on other investments.