Whether you have a primary residence or investment properties, you’ve likely contemplated the question of whether you should pay down your mortgage ahead of schedule. It’s a common question among property owners, and an age-old debate in regards to wealth and financial freedom. Depending on who you ask, you will get different opinions, so lets break it down and look at the pro’s and con’s of each:

Pro's of Paying Down A Mortgage Ahead of Schedule:

• Reduce the overall interest cost of the mortgage

• Potentially eliminating a significant monthly expense

• A sense of safety and a feeling that you are making progress towards financial freedom and becoming debt-free

Con’s of Paying Down Your Mortgage:

• Opportunity Cost! If you pay down your mortgage, your return on investment is essentially your interest rate (3%-5%?). If you took that money and invested it in other investments, you can and should, earn a much higher return.

• Your cost of living will rise over time with inflation, so when you finally do get that mortgage paid off, your other expenses will likely off-set any additional money you may think you will have leftover each month. Taxes and Insurance will never go away.

• Inflation will work for or against you. By keeping a fixed rate mortgage over the long term, you are allowing inflation to work in your favor. This is one of the most fundamental benefits of owning real estate in the USA with traditional financing, and by paying off a mortgage early, you are preventing yourself from this amazing wealth building opportunity. Think about it. By locking in a fixed mortgage for your property, you can pay it off over time with De-Valued Dollars from Inflation! Even if the Fed achieves their goal of lowering inflation, and gets it to 3%.... Compound that 3% over 15-30 years to see how much less the dollar will be worth. If you keep your mortgage long term, you get the benefit of paying off loan(s) with dollars that are worth much less than when you purchased the property. Who do you know that has a mortgage from 20-30 years ago? I’d imagine that the cost of that mortgage now seem really cheap compared to when it initated, and the same will happen with your mortgage over time.

These are some of the things that I personally think about when I contemplate paying down any of our mortgages, and I am reminded that the answer is simple. Real Estate makes the rich get richer because it allows them to use Debt, Taxes, Inflation and Leverage to their benefit. By paying down the loans early, it removes 2 of those wealth creation vehicles.

Now, if you have Tenants paying for your mortgage(s), that’s even better. Each property is a money tree, and trees can take a long time to grow and bloom. Real Estate is not a get rich quick plan, it’s a get wealthy slow strategy; Stay Patient!