Should You Pay Off Your Mortgage Early?

If you’re paying a mortgage, at one time or another you’ve probably thought about what it would be like to pay it off. You’ve likely dreamed about living the life you desire, unfettered by the ball and chain of having to pay your loan payment every month. 

Before you make a decision, however, take a close look at your financial options to determine if it really would be wise to pay off your loan early. In some situations, it’s better not to pay it off.

Consider these reasons, both for and against, an early payoff in your situation.

Benefits of Paying Off Your Mortgage

1. You’ll save big on interest. Depending on where you are time-wise in the term of the loan, you stand to save literally thousands of dollars that you would have paid in interest over the life of your loan.
2. You won’t have the monthly stress of a house payment. This can be a great relief!
3. As retirement approaches, paying your house off means you won’t have to struggle with house payments on a reduced income.
4. You’ll have hundreds of dollars to spend or save monthly. It’s empowering to know that whether you want to take a couple more trips a year or concentrate on saving for the kids’ educations, you’ll have money to put aside for it.

Your confidence about your financial situation will increase. After all, if you pay off your mortgage early, you’re likely doing something right with your budget. You have a lot to be proud of!

Why You Might Not Want To Pay Off Your Mortgage

Taking all of the above into account, sometimes you can still come out ahead without paying off your mortgage early.

Here are some reasons why:

1. Paying interest has its advantages. With mortgage rates being so low now, you might be paying only 3 or 4% on your mortgage. Yet you might find an investment that pays you a 10% return. So you would make more money if you used your extra funds to make a higher rate of interest from an investment rather than pay down your mortgage.

• Bear in mind that if you’re getting an income tax deduction on your mortgage interest, that interest is costing you even less overall.

2. Keeping your dollars in hand may be wiser. Paying off your mortgage in one lump sum might not work in your best interest. Doing so doesn’t increase your net worth because you’ll have less cash.

• Also, paying all your cash into your house means you have substantially fewer liquid dollars. You’d have to sell or refinance your house to get your cash back if you need it. It’s unwise to use all your cash to pay off your mortgage, especially if you could be earning interest on it.

3. Avoid taking cash out of your 401(k) to pay off your house, especially if you’re less than age 59-1/2 because of the extra penalty. Plus, all the money you take out is taxed at your ordinary income rate.
4. Paying off loans with higher interest rates first makes more sense. It’s smarter to pay off a higher interest debt than your mortgage, if your mortgage has a lower interest rate.

Answering the question of whether to pay off your mortgage early takes some deliberation. Ensure you take into account your specific situation. Strive to determine how you can save or make the most money and you’ll be happy with your choice.