I was recently reading an article on MSN Money about the possible demise of the mortgage tax break. My first reaction to seeing the title though was disinterest. Why? Because I don’t currently have a mortgage. However, after reconsidering for a moment, I found that I did care a little since our family might one day again carry a mortgage. In the process though, I found that the train of though that the article set me upon drove home some of the multitude of benefits having paid off our mortgage provides.
Increased SavingsWithout a mortgage, we’ve ditched a huge expense in our family budget. This opens up a gap between expenses and earnings that can be used to increase our savings. When we had the mortgage on our first home, we were making nearly half of each payment toward interest alone. Our average monthly payment was right around $1,350, and that doesn’t include the amount added to this for property taxes and insurance, which pushed our payment closer to $1,750, and including repairs and maintenance was nearly $2,000 a month. Now, we only have our $300 association fee and our taxes and insurance of about $250. Even throwing an extra $50 a month onto this for additional repairs and maintenance, we’re still only at about a third of what we were paying for our previous mortgage and related home costs. This makes for additional savings that can increase our spending options.
Tax Break IssuesWe are no longer eligible for the mortgage interest tax deduction. This works out in a way, since even if we had a mortgage on our current home, due to its size, it probably wouldn’t create enough in interest paid each year to make itemizing our deductions worthwhile as compared to taking the standard deduction. Plus, I’ve often heard the mortgage interest deduction compared to spending a dollar to save twenty-five cents. I’d rather not have to pay thousands of dollars in interest on a mortgage so I can take a tax deduction that saves us significantly less than we spent to get it.
More OptionsNow that we’re mortgage free, we can decide what to do with our excess money. There isn’t a substantial amount of excess cash though because we’ve used part of our being mortgage free to work less and spend more time together as a family. Not having those overly burdensome monthly mortgage payments has allowed my wife to change jobs to a role in which she has summers off. While this has trimmed the gap between income and expenses significantly, we would rather trade our mortgage for more time together as a family.
Peace of MindWhile the financial benefits of not having a mortgage are huge, there is also the peace of mind that attaches itself to not having that monthly mortgage obligation hanging over us. Knowing we don’t have to answer to a bank or financial institution -- whether or not we’re gainfully employed, or if one of us gets sick or whatever else might happen -- is a weight lifted from our shoulders. Not having to worry about being underwater or being foreclosed upon is a great relief and is yet another advantage of being mortgage free.
Lewis, Marilyn. MSN Money. “Is the mortgage tax break in danger?” February 21, 2013. http://money.msn.com/home-loans/article.aspx?post=df063943-6501-4fcb-8fe0-81fda0dfe450. February 23, 2013.