Should You Pay off Your Mortgage Early?

The dream of many homeowners is to let out an exhalation of breath and cheer at the same time they send the last check into the mortgage company well before their 15 or 30 year loan ends. For these folks, the end to monthly payments is the beginning of a period of financial freedom, whether it be extra money gained or the ability to sell the house and reap the rewards of its full value. However, are there any consequences to this action? Let’s examine the pros and cons and answer this question – should you pay off your mortgage early?

The simple answer to this question is yes – you should pay off your mortgage early. However, it needs to be done with proper money management in mind. Non-payment of other debts, such as credit cards or student loans, in order to close out your home mortgage can be detrimental to your credit ratings. Damage can also be done to your family if you reduce essential payments for food or utilities in order to pay down the home loan. In this situation, make sure there are no other outstanding debts and you have established a regularly followed household budget before tackling the mortgage.

Another item to consider should you want to pay off your mortgage early are any fees attached to the loan. In some instances, lenders will charge a prepayment penalty if the mortgage was refinanced. While many homeowners negotiate to waive this fee, it can sneak up on those who agreed to it during the initial signing. For owners attempting to pay off their mortgage three to five years after the refinance, the prepayment penalty can cut into their profits. Best to consult with your mortgage lender prior to paying off the loan to determine what fees will apply should you pay off early.

There are other factors to consider should you pay off your mortgage early. Many homeowners rely on the interest paid on their mortgage to help reduce their annual federal taxes. Though this may be a large amount when your mortgage is six figures or more, the interest paid will continue to drop as the amount left to be paid is reduce, making it negligible for federal taxes. Two other items to consider are property taxes and home insurance. Normally, these costs are part of the mortgage payment, escrowed for future retrieval. If you consider paying off your mortgage early, make sure you will be able to pay these fees through the normal household budget.

If you don’t see any problems with any of the above issues, go right ahead and pay off your mortgage early. Not only will it provide you financial security, but it will give you a peace of mind you never had before.

2 Responses to Should You Pay off Your Mortgage Early?

  1. Young families might want to think twice before paying off a mortgage early. Yes there are advantages, but don’t risk losing everything in the process. Leave yourself a very large emergency fund.

    You could be paying down your mortgage ahead of schedule for years, then if an income disruption occurs, and you fall behind on the loan you lose the house – even though you are way ahead on the original schedule.

    Young families may have more children, take unpaid maternity leaves, or mom may decide to stop working to spend time with the kids. Aggressively paying down a mortgage may not allow for these possibilities.

  2. […] @ Young Family Finance writes Should You Pay off Your Mortgage Early? – The dream of many homeowners is to let out an exhalation of breath and cheer at the same […]

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