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Paying Off a Loan

Orion’s brokers are often faced with the question from their client, “Is paying off a mortgage early the best financial move for me?” Our experienced brokers will advise clients to look at some items to consider before the client commits to paying off their mortgage ahead of schedule.

A broker will often ask a client, “Are you maxing out your contributions to your retirement account?” Most Americans are underfunded for their retirement, many of whom own homes. Instead of paying additional principal down on one’s mortgage, put it into a retirement account. Why? The money going into retirement is usually deducted from one’s taxes (an exception can be if a client contributes to a Roth IRA account), whereas the money used to down a mortgage is not. People can deduct the amount they pay on a mortgage interest directly from their income on their income taxes.

What about the mortgage's interest rate? In the last several years Orion and our brokers have helped thousands of borrowers obtain great financing. Is it lower than other debt a client has? If they are maxing out their retirement contributions but have consumer debt such as credit cards or auto loans, it makes more sense to pay off that higher interest, non-tax-deductible debt before paying off the mortgage. 

Brokers will advise clients to have a conversation if they are planning on selling their home in the future, before the current term of the mortgage is completed and before an over-payment plan would pay off the mortgage. If so, your clients should consider putting the additional funds into savings, investments, even cash. A home is not worth more, or less, depending on the mortgage balance it is determined by location, size, condition, etc., not by the amount of debt secured by the home. We are fortunate that in areas where Orion’s brokers operate prices have been appreciating. There is no compound equity or equity reinvestment in one’s personal residence, it will be worth what the market dictates when it comes time to sell.

One final consideration our brokers discuss with clients, and that is it costs money to get money back out of their home. If a client has $100,000 equity and wants to access some of it, they will either need to refinance, obtain 2nd loan or HELOC, or sell the property, each of which has costs. What if they pay down their mortgage and need money in the future for home improvements, medical emergency or other unexpected life event? All these are factors, and there are more, borrowers should consider before paying extra down on their mortgage.Orion’s brokers are often faced with the question from their client, “Is paying off a mortgage early the best financial move for me?” Our experienced brokers will advise clients to look at some items to consider before the client commits to paying off their mortgage ahead of schedule.

A broker will often ask a client, “Are you maxing out your contributions to your retirement account?” Most Americans are underfunded for their retirement, many of whom own homes. Instead of paying additional principal down on one’s mortgage, put it into a retirement account. Why? The money going into retirement is usually deducted from one’s taxes (an exception can be if a client contributes to a Roth IRA account), whereas the money used to down a mortgage is not. People can deduct the amount they pay on a mortgage interest directly from their income on their income taxes.

What about the mortgage's interest rate? In the last several years Orion and our brokers have helped thousands of borrowers obtain great financing. Is it lower than other debt a client has? If they are maxing out their retirement contributions but have consumer debt such as credit cards or auto loans, it makes more sense to pay off that higher interest, non-tax-deductible debt before paying off the mortgage. 

Brokers will advise clients to have a conversation if they are planning on selling their home in the future, before the current term of the mortgage is completed and before an over-payment plan would pay off the mortgage. If so, your clients should consider putting the additional funds into savings, investments, even cash. A home is not worth more, or less, depending on the mortgage balance it is determined by location, size, condition, etc., not by the amount of debt secured by the home. We are fortunate that in areas where Orion’s brokers operate prices have been appreciating. There is no compound equity or equity reinvestment in one’s personal residence, it will be worth what the market dictates when it comes time to sell.

One final consideration our brokers discuss with clients, and that is it costs money to get money back out of their home. If a client has $100,000 equity and wants to access some of it, they will either need to refinance, obtain 2nd loan or HELOC, or sell the property, each of which has costs. What if they pay down their mortgage and need money in the future for home improvements, medical emergency or other unexpected life event? All these are factors, and there are more, borrowers should consider before paying extra down on their mortgage.


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