Why Paying Off Your Mortgage Early Isn’t Always Best
If given a chance, plenty of people would choose to have all debt eliminated from their lives. A mortgage is a huge loan that follows most of us as we get older because of the sheer amount of time to pay it off. People seeking to be genuinely debt-free often have a goal of clearing their mortgage early, but that option isn’t always the best.
In the last decade, homebuying rates have risen by around 1 million per year. More people are taking out mortgages, so it’s more important than ever that you consider whether paying off yours early is right for you. While you may think you’re ready to rid yourself of the debt, more factors at play might convince you to keep it around for a bit longer.
Benefits of Choosing to Pay Off Your Mortgage Early
Paying off your mortgage is typically a great achievement. If all things align right for you and you see a path toward an utterly debt-free life, it might be time to pay off your mortgage and ultimately own your home.
Freedom from mortgage payments means you can contribute that extra money to some other place in your life. You could build your retirement fund or pad your safety net. You can eliminate another massive debt that could have held you back from accomplishing true financial freedom. Paying off your mortgage early is exceptionally tempting if you have the money because of all the freedom it gives you.
If you want to pay off your mortgage aggressively, consider changing your payments from monthly to biweekly. Doing so would give you enough time to make plans for future payments and other lines of credit so that paying off your mortgage won’t affect you negatively.
5 Reasons Why You Should Keep Your Mortgage
Choosing to pay off your mortgage isn’t a simple decision. While it can open up channels of financial freedom for you, it can also hold you back from other financial goals. It’s crucial to analyze the risks of eliminating debt before you do it so you’re fully prepared to make the decision that’s best for you.
1. Lost Tax Deduction
Did you know that you can deduct what you pay in mortgage interest from your taxes? According to the IRS, you can claim interest from the first $750,000 on a home mortgage, which means many people could continue getting this tax deduction for the duration of their mortgage.
Without a mortgage, you potentially lose that money that could have helped soften the blow of taxes on your wallet. Before you pay off your loan, think about whether you want that yearly tax deduction.
2. Focus on Other Debt
Your first target should be debts with high interest rates. For example, if you have student loans, you should consider paying those off before looking at your home investment.
Any other debt should go before you touch your mortgage, as your home is an investment for an average of 30 years. Focusing on paying down other loans can give you the same sense of accomplishment toward financial freedom while positively impacting you.
3. Lost Investments
You could use the money you used to pay your mortgage off in full for something else that will build a better life for you in the future. Saving for retirement is an important one — imagine the difference dropping a lump sum into your retirement account could make instead of using it on your mortgage.
Also, if you haven’t built up your savings account, you should focus on trickling additional money into it. Your savings account should be full of three to six months’ worth of expenses to keep you afloat in case of an emergency.
You also shouldn’t withdraw money from your savings to pay off your mortgage. While it might seem nice to be free of the financial burden, you also won’t have a cushion to fall back on if something goes wrong.
4. Mortgage Prepayment Penalties
You may have to pay your lender a fee if you choose to pay off your mortgage when owning your home for only a short number of years. If you’ve had your mortgage for a while, you may not have to worry about paying an extra fee, but it’s always best to ask your mortgage lender in Cincinnati if they have this sort of fee before making a big decision like paying off your mortgage.
5. Your Credit Score
Your credit score will undoubtedly take a hit if you remove one of the lines of debt-repaying options. The change could be small, but it’s still something to keep in mind if you don’t have other ways to build your credit. Paying your mortgage every month can help you maintain an excellent credit score.
If your mortgage was your only line of credit with a low balance on it, then paying it off might hurt your score and cause it to plummet because that account doesn’t exist anymore.
Pros and Cons of Paying Off Your Mortgage Early
Once you decide to pay off your mortgage, you’ll find that many of your financial goals have been accomplished. What will you do next? Having a clear objective in sight can keep you motivated to build generational wealth.
If you don’t pay off your mortgage all at once, you have something to drive you onward, something you’re working toward while enjoying your life to the fullest.
Author
Evelyn Long is the editor-in-chief of Renovated. Her real estate work has been published by the National Association of REALTORS®, Rental Housing Journal, and other online publications.
