When is Paying off Your Mortgage Early a Smart Move?

Written By Jeff Hindenach
Last updated November 11, 2017

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January 2, 2015

Simple. Thrifty. Living.

Financial experts don’t always agree on whether homeowners should pay off their mortgage early. That’s because it’s not always a smart move. Still, there are cases in which paying off a mortgage early can be a positive step for individuals who want to eliminate debt or reduce anxiety over their financial future.

These are a few instances in which paying the mortgage off as soon as possible can be a good idea:

Mortgage interest rates vary, but the one thing they all have in common is that they cost homeowners extra money. Even those who borrowed at low interest rates still pay thousands of dollars over the principal amount during the life of the loan. Of course, those who borrowed at high interest rates will pay significantly more over the life of the loan.

This means that anyone who wants to stop wasting money on interest should consider paying off their mortgage early. Homeowners are encouraged to do the math with their specific interest rate and principal loan amount to determine how much they are spending a year on interest. They should then think about how having that money in their pocket would affect their financial situation.

Of course, homeowners should also consider the tax benefits of continuing to pay off their mortgage. A financial adviser can assist homeowners in determining which is the best option.

A common argument against paying off the mortgage early is that the homeowner could simply invest this money in another, more profitable, security. However, many homeowners are not very skilled when it comes to investing, so they would struggle to choose the right investment vehicle.

Plus, most investments do not guarantee a return, meaning that homeowners who choose to invest the money they should be using to pay off their mortgage are taking a risk. On the other hand, paying off a home loan is a guaranteed investment, so those who want to see results and would like to avoid taking a financial risk should take this route.

Having a mortgage can be scary because if a home is not paid for, the homeowner is vulnerable to foreclosure and homelessness. With most other bills, the consequences of not paying include a lower credit score and repossession of a car, furniture or other items, none of which are as essential as a home. That’s why getting rid of the monthly mortgage payment holds such appeal for many people.

Being mortgage-free is especially beneficial for people who might be seeing a reduction in their income in the future. For example, many people try to pay off their house before they retire because they want to reduce their expenses before their income decreases. Similarly, anyone who simply wants to know they can keep their home even when they are broke should consider paying off their mortgage early.

Finally, anyone who has been working hard to become debt-free might consider paying off their mortgage early. Such people usually pay off credit cards first, followed by loans with the highest interest rates. This results in saving the mortgage for last.

In such cases, there is no reason to avoid paying off the mortgage early as long as all other debt has already been eliminated. For individuals who prefer to live debt-free, owning a home free and clear can represent a significant level of financial freedom. Such individuals may decide to use the cash that they no longer spend on mortgages and bills to open up a new business, make new investments or even purchase another home.

About the Author

Jeff Hindenach

Jeff Hindenach is the co-founder of Simple. Thrifty. Living. He graduated from Bowling Green State University with a Bachelor's Degree in Journalism. He has a long history of financial journalism, with a background writing for newspapers such as the San Jose Mercury News and San Francisco Examiner, as well as writing on personal finance for The Huffington Post, New York Times, Business Insider, CNBC, Newsday and The Street. He believes in giving readers the tools they need to get out of debt.

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