Whether you do not have a mortgage because you have paid off the cost of your house and own it outright or because you do not own a home at all, there are many benefits to not having a mortgage. Some of the benefits are financial, while others are emotional.
Renting vs. Owning
If you rent you have the benefit that rent is likely lower than a monthly mortgage payment. At the same time, your landlord is responsible for taxes and maintenance. When housing markets are down or stagnant, renters also have the opportunity to invest the money they would have paid towards a mortgage in something that might appreciate more than the value of real estate.
Anyone who does not have a mortgage can invest the money they do pay towards a loan someplace else. Real estate can be a profitable investment, but it is by no means the sole road to riches. Rising home values are also not guaranteed. If home prices appreciate just 3 percent a year while the stock market returns 8 percent, a stock investor will be financially better off.
The True Cost of a Home
Even if you got a great deal on your house or condo, you must remember that the sticker price is not your final cost. Let's say you paid $300,000 and have a 30 year mortgage at 5 percent interest. At the end of 30 years your total home cost will actually be close to $580,000, nearly double the initial price. If you buy a home outright or pay down the mortgage early, the actual cost will be lower.
Peace of Mind
Most homeowners dream of one day being able to burn the mortgage. Once a mortgage is paid off, monthly housing expenses are reduced to the cost of taxes, insurance and maintenance. Imagine the peace of mind you'll have when you are free from a huge debt. And it's impossible to put a price on the pride of home ownership and knowing that your home belongs completely to you and not in part by the bank.
Advantages of Having a Mortgage
In order to compare the benefits of not having a mortgage, it is helpful to understand the benefits of having one. One of the greatest advantages to a home mortgage is the fact that in most cases the interest paid annually is deductible from income taxes. Another benefit is that borrowing money for a house, rather than buying it outright, frees up capital to invest elsewhere. This only makes sense when mortgage rates are low and other investments are yielding higher rates of return.
Annabella Gualdoni has written newsletters and reports for corporations and nonprofits since 1994. She is a real estate professional and also teaches subjects including international cooking and travel, dating/relationships and personal finance. Gualdoni has a Bachelor of Arts in international development from University of California, Berkeley, a Master of Arts in international relations from Boston University, and a Juris Doctor from Boston College Law School.