Let’s look at some questions you must answer when thinking about paying off your mortgage early…
Well, the answer depends on many different things! Let’s look at some of the things you need to consider!
Having a mortgage is one of the best debts you can have but it’s still debt. The responsibility of a mortgage can be a large concern to a lot of people.
What many home owners may not know is that paying your mortgage off early could have a bad effect on your finances. While paying off debt is usually the best thing to do, let’s look at some of the pros and cons!
Paying Off Your Mortgage And Your Taxes
People like to say that having a mortgage means you get a nice tax deduction. The mortgage interest deduction is sacred in many people’s minds. If you look at how much that the debt actually costs by the time you pay off your mortgage, it starts to look overrated.
The standard deduction for a married couple filing jointly can exceed the value of the mortgage interest tax deduction. Unless you are paying more in mortgage interest than the standard deduction, you may not gain much unless you have other deductions.
Analyze your situation and speak to you tax professional. Paying off your mortgage could be a smart move since you get the standard deduction no matter what.
Beat the Interest
If you pay off your mortgage early, you’ll beat the additional interest that you would have paid. This amount of money can be substantial. The lower your mortgage rate, the less you will save by paying off your mortgage early.
You Can’t Take It With You
If you pay off your mortgage, you may leave more to your heirs. If you wish to will your home to your kids, it could be best if you pay it off early. If they don’t have a lot of income, it is best if you pay off the home loan. If not, they could be forced to sell the home regardless of whether they wish to or not.
Peace of Mind
For some, paying the mortgage off offers them a secure feeling. Having less debt means you’ll have less to worry about. The psychological advantage of becoming debt free cannot be underestimated.
Eliminating your home loan before you retire will give you peace of mind. It can substantially decrease the amount of money you need for bills with every month. When you no longer have to pay a home loan, you can focus on enjoying your golden years.
Your golden years should be happy ones. You don’t want to spend your retirement concerned about how you will pay the mortgage.
Your Credit and A Mortgage
It can be a relief to no longer have a house loan. However making the monthly payments actually helps your credit report. Eliminating debt is great but paying a mortgage proves your reliability to lenders and helps your credit score.
A Limited Disposable Income
It might be enjoyable to cut debt but a strict budget can be very confining. Life is for living not for paying bills or saving every penny you make!
Pushing yourself to save on a regular schedule and staying on a budget is great in the long run. However cutting down on all the stuff you love so that you can pay off your mortgage can make you miserable and create tension. You need to look for a way to balance reducing debt and making the most of your life.
A House Is Not a Liquid Asset
Real estate isn’t a liquid asset. Selling real estate requires time and work. Selling your home could take months. When you use your extra cash to pay off your home loan, your house becomes your only major asset. This means you may not have any cash in the bank for any unexpected expenses that will pop up.
If something happens that means you need money fast, your money is tied up in your own home. This is why you need to have an emergency fund of cold hard cash in the bank.
On the other hand…
Pay Off Your Mortgage So You Can Invest
Being debt-free is great. But spending the majority of your income on your house loan could leave you with not much money to invest. Some people believe the money they save will make up for the money that isn’t being invested. This is not always true.
Ask yourself if you are saving enough for your retirement? Many people think it is better to invest and make some money than to pay off a mortgage.
A sensible investment strategy can outperform the savings you’d get from repaying your mortgage. Rather than putting all your resources into paying off your mortgage, you should use some for investing.
Just remember that we don’t know that the stock market is always going to go up. We do know that not having the burden of a mortgage payment is great. Investing isn’t a sure thing, but having a paid off house you can live in is.
You must decide what is best for you!
The Take Away:
Since I am a Realtor and not a financial planner, I strongly suggest you talk with your tax person, your accountant and every other person you rely on for financial advice!
So, should you prepay your mortgage? I gave you lots to think about and it is up to you to decide. Just make sure any decision you make is an informed one.