Is It Smart To Pay Off Mortgage Early?

There is nothing more financially satisfying than being debt-free. For most people, a mortgage is the largest debt that they carry throughout their life, and it is a burden that they probably would be quite happy to get rid of. In fact, knowing that you own your house outright would probably lead to one of the most surefire feelings of financial security possible.

But there are some drawbacks to consider. You should only consider making extra payments on a house if you have a large amount of cash on hand, because if you lack liquidity, you could lose everything in a recession. Let's say you can afford to spend $2000 on house payments each month on a $1500 mortgage. If you throw that extra money into the house, and find yourself laid off in the coming years and unable to make a house payment, than you will run into quite a bit of trouble if the bank doesn't give you a home equity line of credit, and instead chooses to foreclose on your home. Instead, I recommend that you use the extra $500 a month to invest in blue-chip stocks and use the income it throws off to go towards an additional house payment. Think of it like this--that extra $500 a month, or $6000 a year, would give you $180 in dividends that you could use to go towards the house payment.

That way, if you do find yourself in dire straights at some point in your life, you could simply sell off the stocks to meet your needs. If you have to rely on your house as a piggy back, you could find yourself in for a nasty surprise.