When the BEST financial move, may not be the best decision
One common conversation that arises during the planning process is, “when should I pay off my home?” We have learned there are financial and non-financial reasons important to this discussion. From a financial perspective one must consider the interest rate of the loan, tax consequences on the funds that may be used to pay off a home, the tax impact of eliminating the home mortgage interest deduction, the liquidity remaining on your balance sheet if you pay off a home mortgage and the rate of return that might be achieved on the funds if they remain invested and are not used to pay off the mortgage. These are important variables in making a sound financial decision to pay off a home. Alternatively, we make it clear to our clients that not every decision should be made just because it makes the most financial sense. From a non-financial perspective there may be peace of mind and comfort knowing you do not have a house payment. Some individuals may have an aversion to carrying debt. As clients retire, sometimes they appreciate knowing their fixed expenses are minimal and it allows them to worry less about financial markets.
Generally, our clients have favored the non-financial reasons for paying off their home mortgage. As we illustrate for our clients in our planning software the difference between “plan A” of paying off the mortgage and “plan B” of not paying off the mortgage, most of the time financially paying off the mortgage is NOT the best financial decision. However, when we discuss benefits of having a home owned free and clear and the peace of mind our clients express when that payment no longer exists, the majority of our clients decide to pay off their home. This is just one of many examples of when the best financial move may not be the best decision. As we help our clients plan to reach their goals and dreams, we have no hidden agenda. What we have found in this process is individuals want to know the impact of not making the best financial decision. If the impact doesn’t derail them from reaching their goals, they are more than comfortable settling for just the “best decision”. Another short and more obvious example would be cutting back on work to spend more time with family. Clearly, the best financial decision is to work more and spend less time with family. But we might be able to assist a family in finding a way to make the best decision that allows them to spend time with family and still meet their financial goals. We hope you’ll carefully consider not just the best financial move but the best decision to help your family meet your life’s goals.