Paying off your mortgage early
Paying off a mortgage early is something that many borrowers may be interested in. However, there are a few things to consider before deciding to go through with this process.
Why you should pay your mortgage off early
Less financial stress in retirement
Housing is one of the biggest expenses that retirees face. If you’re worried about not being able to make mortgage payments into retirement, paying off your mortgage beforehand can be a huge weight off your shoulders.
Slash interest costs
Each mortgage installment, mortgage lenders collect interest. Therefore, the sooner you pay off your mortgage, the less it will cost you.
Cash for college
If you plan on having children, college is a very real possibility. However, mortgage payments don’t disappear once the college bills come in. If you pay your mortgage off early, you’ll have the extra cash available to dedicate to tuition costs.
Why you shouldn’t pay your mortgage off early
There are a few reasons that you might not want to pay off your mortgage early. These include:
Invest the money
Investing the money may give you a higher return than paying off the mortgage would. This is especially true for tax-free accounts. One of the best ways to get significant growth is to have a variety of investments in different asset classes. Tying up a lot of extra money in your home limits that possibility.
Instead of using your extra money to pay off your mortgage, consider using it to pay off other, higher-interest debt. Certain types of debt carry a higher interest rate than a mortgage does, especially non-deductible debt. This includes debt such as credit card balances.
Is this your forever home?
Is this home your forever home? If you think you might move within the next few years, it’s a better idea to carry your mortgage until then.
How to pay off your mortgage faster
Biweekly payments help you to pay off your mortgage faster. To start the transfer over from monthly payments to biweekly payments, re-budget what you normally spend. Factoring in your new payment schedule may be difficult at first, but it will be worth it.
Use a bonus
If you receive a bonus at work, use that money to make a lump sum payment on your mortgage balance. This helps to save on long-term interest costs without having to reconfigure your budget.
Refinance to a shorter time
Refinancing a loan into a shorter-term loan can help you pay off your mortgage faster. Shorter loan terms are often paired with lower interest rates. If you can’t afford to refinance to a 15-year term, consider refinancing into a 20-year term.