Should You Pay Off Your Mortgage Early?

Owning a home outright is an incredible achievement and an admirable goal for many homeowners. How great would it be to live in a home you own without making mortgage payments? But paying off your mortgage early may come with some drawbacks. Here we’ll explore the pros and cons so you can make your own well-informed decision.

Pros

There are many sound reasons to pay off your mortgage early. These include (but are not limited to):

• Peace of mind: There’s no denying the relief you will feel knowing that your home is secure for the future. Peace of mind is a huge benefit.
• Interest savings: Depending on the price of your home and the interest rate you are paying on your loan, you can save a substantial chunk of change by paying off your mortgage five or ten years early.
• More money to invest in other pursuits: If saving for the future is your goal, paying your mortgage off early allows you to free up those funds each month to make investments or to put towards your retirement.
• Extra money to live on each month: Your mortgage likely accounts for a large portion of your monthly expenses. Eliminating that payment will give you extra money to spend and save with each month.

Cons

Here are some drawbacks you should consider before paying off your mortgage early:

• Potential penalties: Some mortgages have penalties for early repayment. Read the fine print before you decide to pay off yours – the costs could be higher than you anticipate.
• Better uses of your money: Your mortgage may not be the most significant financial liability you owe. If you have credit cards, car loans and similar unsecured debt, it may be better to repay those debts before paying off your mortgage. Even accounts with smaller balances may have higher interest rates that can cost you much more over time.
• Tax benefits: When you pay off your mortgage, you eliminate a substantial tax benefit in the mortgage interest deduction. In some cases, it may be worth it to maintain the mortgage and the tax benefit.

When in doubt, it’s never a bad idea to consult a financial advisor. A financial advisor can help you make a decision that benefits you most in your unique situation and stage of life. They may also bring new information to your attention that helps you feel comfortable with your decision one way or another.

Read more articles like this on HZCU’s Financial Knowledge Hub.