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When not to pay down your mortgage

March 20, 2010

Handmade home art_ohmeaghan Home mortgage interest is the biggest tax deduction most of us have. That's because that home loan is our biggest debt.

So it's not surprising that the urge to pay off a mortgage is strong.

Many people do so by making extra principal payments, either via biweekly payments, adding an single extra payment each year or including a little more with each payment. I've been doing the latter since the hubby and I bought our Austin home five years ago, simply rounding up the monthly payment to the next amount that ends in zero.

All personal financial decisions are, well, personal. But Ron Lieber in today's New York Times Your Money column offers some general guidance on when you shouldn't pay down your mortgage.

Things to consider include your real interest rate (which is affected by your tax rate), other investment return options, your savings, liquidity issues and your peace of mind.

I like what one financial planner Lieber spoke to said: "The whole point of planning is to make life better," he said. "It’s not to have more dollars at the end of the day."

Personally, I'm comfortable with the nominal amount of extra cash we send the bank each month. It's not enough to cut our loan term significantly, but neither is it keeping us from doing other smart and fun things with our money.

Do you make extra payments? If not and you're interested, this calculator can help you see what extra payments will do to your home loan.

If you do make extra payments, has doing so significantly affected your cash flow? What about your tax bill?

Home art by ohmeaghan

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The More Tax Posts tab at the top of this page will take you to, well, more tax posts. You also can search below for a tax topic. 

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TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

Credits/Deductions
Disasters
Family
Filing and Paying Taxes
Politics/Laws
Refunds
State Taxes
Tax Brackets/Inflation
Tax Tips
Comments
  • home buyer
    16 years ago Reply

    2010 was kinda a bizarre year for the mortgage market. In the first half of the year, you had a decent number of home sales keeping mortgages for purchases stable, thanks to the home buyer credit. In the second half of the year, that changed as demand crumbled when the credit was withdrawn. At the same time, you had very low mortgage interest rates throughout much of the year cause a mini-refinancing boom. 2011 will look very different, as the housing demand continues to struggle and mortgage interest rates have begun rising.

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