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Monday, 15 August 2016 / Published in Mortgage

Should You Pay off Your Mortgage Early?

Many people consider the debt they owe on their home loan one of the most significant burdens in adulthood. That’s why so many decide to pay off their mortgage years (or even decades) sooner than they really need to pay it off.

calculating the cost of early mortgage payoff

While it may seem like early payoff would be a positive step for just about any homeowner, there are some additional considerations you’ll need to make before taking this path. In many cases, early home payoff is not the beneficial way to go.

Opportunity Costs

When homeowners pay off their mortgage early, it’s either by significantly increasing their monthly mortgage payments, by making occasional large lump sum payments, or a combination of the two.

By doing this, the homeowner is using money that could have been spent on other things and funneling it into the home. This can be considered the “opportunity cost” of paying off your mortgage early.

You could have spent that same money on other investments, such as stocks or your retirement fund, which could then have accrued additional interest.

Maintaining Adequate Savings

For some getting a head start on their mortgage, they may dip into short term or long term savings to pay the large mortgage sums from time to time.

This would not be a wise strategy because once the money is paid into the mortgage, it is no longer “liquid” or easily accessible.

If something were to go wrong – such as a job loss or health problems – you could get yourself into some serious trouble if you no longer have the safety net you once did because you wanted to get a head start on your mortgage payments.

Loan Penalties and Taxes

One thing some may not realize is there may be a penalty for early payoff. You should check with your lender to find out what this would be, if anything.

You also risk losing out on some key tax deductions if you pay off all the interest on your mortgage early.

There are federal and state tax breaks associated with home loan interest that you would be losing out on if you pay off the mortgage early.

Is This Right For You?

Paying off a mortgage early may be right for some people, and the best way to find out is by doing additional research into your financial situation and considering all your savings goals.

If you’d like to see how much additional payment it would require to pay off your mortgage early, check out our early payoff calculator.

For more information about home ownership and paying off your mortgage, see my webpage, email me, or give me a call at the office at (985) 635-4696.

I look forward to helping make your home-ownership dreams a reality!

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