Understanding Mortgages
Before we dive into Orman's advice, let's ensure we're all on the same page about what a mortgage is. Simply put, a mortgage is a loan taken out to buy property or land. The loan is 'secured' against the value of your home until it's paid off. If you can't keep up with your repayments, the lender can repossess (take back) your home and sell it so they get their money back.
The decision to pay off a mortgage early is one that homeowners often grapple with. On one hand, carrying debt can be a source of stress and anxiety. On the other, a mortgage can be a source of low-cost debt that can help one build wealth over time.
Suze Orman's Perspective on Mortgages
Suze Orman's advice on this subject, like all financial advice, is not a one-size-fits-all prescription. It depends on several factors, including a homeowner's financial situation, life stage, risk tolerance, and overall financial goals.
Orman generally advises against carrying unnecessary debt. However, she considers a mortgage to be 'good debt.' Why? Because a mortgage allows you to purchase a home, which is an appreciating asset. This means that over time, a home is likely to increase in value. Also, the interest you pay on your mortgage is tax-deductible, which is a benefit you don't get with other types of debt.
When Does Suze Orman Recommend Paying Off Your Mortgage?
While Orman doesn't outright advocate for homeowners to rush paying off their mortgages, she does offer some instances when accelerating your mortgage payoff might be a good idea. Let's explore these scenarios.
When You're Nearing Retirement: Orman has consistently recommended that homeowners aim to have their mortgage paid off by the time they retire. The logic here is that in retirement, your income is likely to decrease. Eliminating your biggest monthly bill—your mortgage—can reduce stress and make your retirement savings last longer.
When You Have Extra Money: If you've maxed out your retirement contributions, have a healthy emergency fund, and have no high-interest debt, and you still have money left over, Orman suggests that paying down your mortgage can be a good move.
When The Interest Savings Are Significant: If you have a high-interest rate mortgage, the amount you can save by paying off your mortgage early can be substantial.
Orman's Cautions Against Paying Off Your Mortgage Early
While Orman does suggest instances when paying off a mortgage early can make sense, she also cautions homeowners against rushing to pay off their mortgage in certain situations.
Don't Drain Your Savings: Orman emphasizes that homeowners should not deplete their emergency savings or retirement savings to pay off their mortgage. These funds are crucial for financial stability and should not be sacrificed.
Consider Other Debts: If you have other high-interest debt (like credit card debt), Orman advises paying those off first. The interest rates on these debts are typically much higher than on a mortgage, and they're not tax-deductible.
Don't Neglect Your Retirement Savings: Orman cautions against focusing so much on paying off your mortgage that you neglect saving for retirement. She recommends maxing out your retirement contributions before considering additional mortgage payments.
Don't Assume Real Estate Is Your Only Investment: Orman advises against viewing your home as your sole investment. Diversification is crucial in any investment strategy, and that includes real estate.
Does Suze Orman advocate for mortgage payoff? The answer is: it depends. While she sees the benefit in being mortgage-free, especially as you approach retirement, she also recognizes the value of a mortgage in the right circ*mstances.
Remember, while Suze Orman's advice is valuable and rooted in years of financial expertise, it's crucial to consider your individual circ*mstances when making financial decisions. Consulting with a financial advisor can provide personalized guidance tailored to your specific needs and goals.
