Figuring out how to get out of debt can be a challenge, but reducing high-interest-rate debt—even if it’s a tax-deductible mortgage, home equity line of credit, or student loan—can enhance your ability to save. And for long-term financial stability, we recommend that you start paying down your overall debt to a manageable level once you’ve taken care of your other savings priorities.
Some things to consider:
Source: Schwab Center for Financial Research. Assumes a new 4% APR 30-year fixed-rate mortgage and refinancing cost of $2,000. Home value assumed at $250,000 and homeowner equity at 20%. Old loan rate was 5% with 30 years remaining and the same loan size. The refinancing cost is added to the new loan amount. The income tax rate is assumed to be 25%, and the monthly mortgage savings and tax savings differential earn an annual rate of 4% before tax. The accumulated cash flow savings reflect the monthly mortgage differential offset by the difference in tax deductibility of the mortgage interest. This chart represents a hypothetical situation and is for illustrative purposes only.
Does it really make sense to pay off my mortgage?
As is often the case, there is no absolute answer. Your personal financial situation will determine the best strategy for you. Here are some broad guidelines to take into consideration:
Consider a compromise.
At the end of the day, you might find that a halfway solution feels best. By refinancing to a lower mortgage balance (and potentially getting a lower interest rate), you could reduce your monthly expenses while retaining some capital for investments.
What’s the smartest way to pay off student loans?
Along with a diploma, many students graduate with loan debts of $20,000 to $80,000 and more. Here’s how to start reducing what can be a substantial debt.
Schwab Bank can help. Call 888-572-4922 to learn more.
Home lending is offered and provided by Quicken Loans, Inc., Equal Housing Lender. Quicken Loans, Inc. is not affiliated with Charles Schwab Bank, Equal Housing Lender.
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