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Paying off your mortgage early can be a wise financial move. Once you stop making payments, you’ll save money on interest and have more money to spend each month.
Making extra mortgage payments isnt for everyone, though. You may be better off focusing on other debt or investing the money instead. Here are the pros and cons to paying off your mortgage early.
Congratulations! Paying off your mortgage early is a big decision that requires careful consideration. Here are some things to think about before making the move.
In this article, we’ll break down the pros and cons of paying off your mortgage early, answer some frequently asked questions, and help you decide if it’s the right move for you.
Pros of Paying Off Your Mortgage Early
- Save Money on Interest: This is the big one. The less time you spend paying off your mortgage, the less interest you’ll pay over the life of the loan. That can add up to a lot of money, especially if you have a high-interest rate.
- Get Out of Debt Faster: Let’s face it, debt can be a drag. Paying off your mortgage early can help you get out of debt faster, which can free up your cash flow and give you peace of mind.
- Build Equity Faster: Equity is the difference between the value of your home and the amount you owe on your mortgage. The more equity you have, the more financial flexibility you’ll have. Paying off your mortgage early can help you build equity faster.
- Reduce Your Monthly Payments: This can be a big help if you’re struggling to make your monthly mortgage payments. Paying off your mortgage early can free up some extra cash each month that you can use for other things.
- Peace of Mind: There’s something to be said for the peace of mind that comes with owning your home outright. Knowing that you don’t have to make another mortgage payment ever again can be a huge weight off your shoulders.
Cons of Paying Off Your Mortgage Early
- Lose the Mortgage Interest Tax Deduction: This is a big one for many homeowners. If you itemize your deductions on your taxes, you can deduct the interest you pay on your mortgage. Paying off your mortgage early means you’ll lose this valuable tax break.
- Hurt Your Credit Score: Your credit score is a measure of your creditworthiness. It’s used by lenders to determine your interest rates and whether or not you qualify for loans. Paying off your mortgage early can actually hurt your credit score, because it reduces the amount of credit you have available.
- Could Be a Better Use of Your Money: There are other things you could do with your money that might be a better use of it. For example, you could invest it in the stock market or use it to pay off other debt with higher interest rates.
Frequently Asked Questions
- How much should I pay off my mortgage early? There’s no right or wrong answer to this question. It depends on your individual circumstances. If you have a lot of extra cash, you might want to pay off your mortgage early. But if you’re struggling to make ends meet, you might be better off focusing on other financial goals.
- What are some ways to pay off my mortgage early? There are a few different ways to pay off your mortgage early. You can make extra payments on your mortgage each month, refinance your mortgage to a shorter term, or make a lump sum payment.
- Is it worth it to pay off my mortgage early? That depends on your individual circumstances. If you can afford to pay off your mortgage early and you think it’s the right move for you, then go for it! But if you’re not sure, it’s a good idea to talk to a financial advisor.
Additional Resources
- Mortgage Calculator: Use a mortgage calculator to see how much you could save by paying off your mortgage early.
- Refinance Calculator: Use a refinance calculator to see if refinancing your mortgage to a shorter term is a good option for you.
- Financial Advisor: Talk to a financial advisor to get personalized advice on whether or not you should pay off your mortgage early.
Paying off your mortgage early can be a great way to save money on interest, get out of debt faster, and build equity. But it’s important to weigh the pros and cons before you make a decision. If you’re not sure whether or not it’s the right move for you, talk to a financial advisor.
P. S. I strongly advise utilizing a mortgage and refinance calculator to determine how much you could save if you decide to pay off your mortgage early. You can also talk to a financial advisor to get personalized advice.
P.P.S. I’m not a financial advisor, so please don’t take this as financial advice. This is just my opinion based on my research. It’s always best to talk to a qualified financial advisor before making any major financial decisions.
The cons of paying off your mortgage early
- Earn more by investing. The average mortgage interest rate right now is around 6%. The mean stock market return over the past ten years is approximately 9%. For example, if you pay off your mortgage ten years early instead of If you invest the money instead, you’ll probably come out ahead if you do it in the stock market for ten years.
- Mortgage prepayment penalties. If you sell, refinance, or pay off your mortgage within a specific period of time after closing on your initial mortgage, typically three to five years, you will be assessed a mortgage prepayment penalty by the lender. This is a fee that not all lenders charge, and if you are waiting longer than five years to pay off your mortgage, you probably don’t need to worry about it. But you should always ask your lender first.
- Lose the mortgage interest tax deduction. If you are a homeowner, you can deduct from your taxable income the amount of interest you pay on your mortgage. Youll lose this perk by paying off your mortgage early.
- Hurt your credit score. Your mix of credit types is one of the factors that determine your credit score. For instance, perhaps you have a mortgage, auto loan, and credit card. Your credit score will drop if you remove one form of credit. Though it should be a minor drop, this is something to think about.
Questions to ask yourself before paying off your mortgage early
If you’re paying off your mortgage early in order to increase your monthly income, you should plan how you’re going to spend the extra cash. It might be a wise use of the money if you want to invest $900 a month in place of your $900 mortgage payment.
Ultimately, its up to you how to spend the extra cash. However, paying off your mortgage early might not be the wisest financial decision if you can’t decide what you want to do with the extra cash. Keep in mind that even after your mortgage is paid off, you will still need to pay for regular house maintenance and homeowners insurance.