It’s a question that weighs on many homeowners’ minds these days. Is it wise to pay off your mortgage early? The answer depends on your financial situation and there are good arguments that can be made either way. Here are several reasons why you should and shouldn’t pay off your mortgage early.
First, let’s focus on the reasons why you shouldn’t pay off your mortgage early. If your employer matches dollar-for-dollar on the first three percent of your contributions to your workplace retirement plan and you’re note capitalizing on it, you’re wasting money. It’s better to take advantage of return on your money than to pay off your mortgage early.
Another example of when paying off your mortgage early isn’t a good idea is when the interest you’re being charged for consumer debt is more than the interest rate on your home loan. If you have a credit card with an 18% interest rate, every dollar you pay off is the same as an 18% return. The sooner you pay off your debt on that ugly rate the better.
One of the wisest moves you can make to establish financial freedom and security is to establish an emergency fund that will cover three months of living expenses. Before you pay off your mortgage early, have an emergency fund like this in place. You don’t want to be in the situation where a sudden job loss forces you to choose between paying your mortgage and having to pay for a major car repair.
Another situation where paying off your mortgage early isn’t a good idea is when you owe significantly more on your house than what it is currently worth. When your mortgage is upside down you’re more at risk for foreclosure if you experience job loss or some other hardship that prevents you from making your monthly mortgage payments. Better to continue to make your regular payments and seek refinancing if possible.
Doubling up on mortgage payments is not the thing to do if you haven’t established life, health or disability insurance for your family. If you are the only source of income for your family, how will the mortgage be paid if you die, become disabled or suffer a catastrophic health problem? These three insurance policies should be in place before you consider paying off your mortgage early.
On the other hand, there are some good reasons to pay off your mortgage early. One is the peace of mind that comes with knowing your house is paid for. Another good reason to pay off your mortgage early is not having a mortgage payment during retirement. One of the best ways to lessen the impact on a fixed income is to make sure your mortgage is paid off before you retire. A third good reason for paying off your mortgage early is better control and return on investment than the risks involved with investing your money elsewhere like the stock market or other investment opportunities. For some homeowners, the best reason for paying off their mortgages early is their disdain for paying interest. Eliminating debt and interest charges is the key to financial freedom.
When it comes to whether or not paying off your mortgage early is a good idea, it all depends on you and your financial situation and what you value.