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Although most financial experts agree that you want to pay off your mortgage as soon as possible, there are some instances where it may not be best...

Although most financial experts agree that you want to pay off your mortgage as soon as possible, there are some instances in which it makes sense not to pay off that mortgage debt as humanly possible.  Mortgage debt isn’t necessarily bad debt even though it is technically debt.  It really depends on the individual and how risky they tend to be with their investments and their mortgage.  Some people are comfortable with the unknown and others are more comfortable with certainty and are more ‘black and white’ and concrete thinkers.

Here are four reasons why you might not want to pay down your mortgage as soon as possible:

When the Interest Rates Are Low

With the Bank of Canada continuing with the same interest rate for the fourth straight year in a row, it makes sense to not pay down the mortgage as quickly because you can make more money with your money through other means.  For example, investing.  Find an equity that pays dividends at 5% and you are already beating the interest rate that the bank charges you for your mortgage.

Afford Anything breaks it down (paying down the mortgage or investing in the market).  Peace of mind versus Opportunity cost. You decide.

When You Use Your Home For Work At Home Expenses Or To Offset Rental Income

One of my favourite reasons for not paying down my mortgage so quickly is that I can use the interest income that I pay for my mortgage as a tax deduction for working from home.  Of course, it is only a portion of the home that you use but it is still better than no deduction, in my opinion.  In addition, if you have a rental suite you can use the portion of your mortgage for that suite to offset the rental income that you receive so that in effect, you pay less taxes on your rental income.  This is especially relevant for those lucky enough to have rental properties.  Many people opt to stretch out their amortizations on rental properties while paying down their principle residence.

Related: How Wrong We’ve Been About Mortgages

When You Don’t Want All Your Eggs In One Basket

Leverage.  It’s a powerful word.  I could technically be mortgage free right now but then I would have most of my assets tied up into real estate.  Real estate is just one basket and to be diversified and reduce risk (you know that the real estate market is going to crash) it is a good idea to not keep all your eggs in one basket.  Having a mortgage allows me to invest extra money into the stock market and into exchange traded funds or index mutual funds.  Of course, I could technically pay off my mortgage and use the equity in the mortgage and my Home Equity Line of Credit to invest in the market and obtain a tax deduction on the non-registered investments (as known as the Smith Maneuvre) but that’s a little complicated for me at the present moment.  Maybe in the future.

The blog Retireby40 agrees, putting all your eggs in one basket is not diversification.

When You Don’t Have Enough Of An Emergency Fund

MSN Money cautions people thinking of siphoning all their money to pay off mortgage debt if they don’t have enough reserve of emergency fund money in the first place.  Everyone should aim to have three to six months of living expenses saved up in an emergency fund (e.g. liquid cash) in case of job loss.  It might be fine and dandy to have your mortgage paid down but if you lose your job you still need to pay for things like food and utility bills.  Of course with your mortgage paid down it will be a lot less stressful but let’s not put the cart before the horse shall we say.

I must admit, I am of the camp of not paying down my mortgage so quickly, but it might be a good idea because the rates will rise soon enough.  That’s why I put an extra payment today.  Contrary to what this post talks about!

Readers what do you think? Are there are there other reasons why you would not pay down your mortgage quickly?

Article comments

Oslerscodes says:

We have personal professional corporations that effectively run as investment corporations and have always been given the advice to defer extra mortgage payments in favour of keeping $$$ in the corporation for investment purposes to take advantage of the partial tax deferral. I suppose this is a more nuanced example of your first point.

Also take advantage of the second (run business out of residence).

I totally article with Mark. If you have high-interest debt, obviously it makes sense to concentrate on that before making any extra payments on your mortgage. As a single homeowner, I’m the sole breadwinner of my family. If I lose my job or got sick I could lose everything. Even though I could probably get better returns in the stock market, it’s about not having the burden of 6-figures of mortgage debt hanging over my head.

If you lose your job, you might wish to re-think these reasons. Nobody I know ever regretted having no debt. 🙂

KC says:

I can certainly agree with you especially as the folks in their 40s and 50s get laid off. It’s often a long time before they can get back into the job market, if at all.

Lance @ HWI says:

I was actively paying ours down for a while until the economy tanked and then we put all our extra money in to the market. That was a big change and completely opposite of what I had been taught…but I’m so glad I did it. It totally changed our financial life with the market increase the last 6 years. Our investments are far above what our house is worth and giving us more than just paying off our house. Now that the market has reached all time highs and peaking we are back to paying off our house, but now we also have a ton in our investments. This is totally a personal decision and everyone is in their own situation based on what their house is worth and how much money they have available to invest.

Liquid says:

Great post. I plan to pay down my mortgage as slowly as possible. Another reason to keep a mortgage around is inflation. If we stash away $100 under our beds today then by next year it will probably only be worth $98. The rising cost of living can be a pain, but it can also be a blessing to people who have a mortgage. If we owe the bank $100 for example, then by next year, if we haven