Pros And Cons: Paying Your Mortgage Off Early
Is it better to pay off the mortgage on your home early so you can live free and clear of homeownership debt?
Or is it better to make scheduled payments in full and on time, but not bother rushing through the payment process? Here are a few things to consider when making the decision.
Why would you want to pay off the mortgage early?
- Large debts can be emotionally draining.
- Mortgage lenders are making lots of money at your expense.
- There are other costs associated with having a mortgage, like private mortgage insurance, that can add up.
- Paying off a mortgage early offers financial security and flexibility to put money toward other expenses.
Okay, I’m interested! But how do I do it?
- Refinance to a lower interest rate, which can drop interest payments.
- Refinance to a shorter loan time frame. Your monthly payment may increase, but if you pay more each month for a shorter period of time, you’ll pay the loan off faster, build equity faster, and save on interest payments.
- Make a lump-sum payment toward the principal (such as with a tax refund) — but make sure you won’t be hit with a prepayment penalty before you do.
- Pay a little more each month. Consider rounding up your payments so you’re paying a bit extra on the principal.
Hold up! There are a few reasons not to pay your mortgage off early.
- Before paying off your mortgage, focus on other finances. You need a significant emergency fund (6-12 months of living expenses) and should pay into a retirement account. Also, pay down any high-interest debt before getting ahead on the mortgage: credit cards, student loans, and other sizable debt.
- Money spent paying down mortgage can’t be spent elsewhere. For example, done intelligently, investing in the stock market is likely to result in a higher financial return than paying off a home mortgage loan.
- You might lose a tax break. You might be able to deduct interest paid on your mortgage, which reduces your annual taxable income (review recent tax changes, as more people are now just claiming the standard deduction).