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Advantages and Disadvantages of Paying Off Your Mortgage

By Bill Gassett | August 13, 2019

Pros and Cons of Paying Off Your Home Mortgage Early

When you buy your first home, you soon learn that life is all about making the right financial decisions. Everything is about the pros and cons of things like paying off the mortgage on your home. These are not easy decisions to make.

Before you decide to pay off your mortgage or keep it going, you should make yourself a list of the advantages and disadvantages. It could be tempting to take any savings you have and get rid of what you more than likely consider a debt. But, is that the smart thing to do?

Well, in some instances, it could be smart, but not always. There are many things you need to consider before you use your savings to pay off your mortgage.

Pros and Cons of Paying Off a Mortgage

How Much Do You Have Saved Up?

Do you have just enough savings to pay off the mortgage? In that case, it is not a good idea to pay off all of your mortgage. Many homeowners forget to realize they have agreed to borrow money for a certain term. In other words, the final figure you see on your annual mortgage statement may not be everything you owe to your lender.

Check your contract for penalty clauses relating to paying your mortgage off in its entirety. Paying your mortgage off could cost you more than you think. While prepayment penalties are not common today, years ago, they were. If you've held your mortgage for an extended period, it's worth checking.

In fact, one of the questions to ask a lender before agreeing to any loan is whether there is any kind of early payment penalties. If so, find another lender. It's not worth the aggravation.

Living Expenses

If you use all of your savings to pay off your mortgage, do you need to start saving from scratch? It is always good to have emergency funds available. What if your car breaks down and you need a new car? Obviously, not an insignificant expense, right?

The interest on a car loan is often higher than the interest on a mortgage. It could mean you would be paying more instead of less.

What about the kids? Make sure you have enough money for college funds and unexpected expenses related to the family. Anything can happen, and it is best to be prepared rather than having to go to the bank and take out a loan.

Short term loans are expensive and can involve opening as well as closing fees which are unnecessary.

Having plenty of money on hand after paying off your mortgage should be an essential consideration. There is no point in being cash poor just to ditch a mortgage.

Pensions and Retirement

Saving for retirement is becoming increasingly challenging. Banks really don't offer great savings rates these days. If you have an excess cash pot sitting around, there are often smarter ways than paying off the mortgage to use it.

Instead of getting rid of your mortgage, you should consider investing in another property. It is hard to get a return on any savings in your bank. A better way would be to make yourself some money for your retirement and invest in a property to rent out.

Remember you don't need to buy a large property. You could buy a small condo or house to rent out to students or young people who have just moved out of the parental home. Always think about how you can make the money you have today go further.

More Than Enough Savings

If you have more than enough savings to cover all eventualities, it could be a good idea to pay off your mortgage. Not all homeowners are lucky enough to have the opportunity to do so. Some folks like the security of knowing they don't have a substantial debt hanging over their head.

Of course, there are always alternatives. A percentage of people often work on a compromise between paying off the mortgage in its entirety and making normal payments.  If you don't want to pay off your entire mortgage, you can always pay it off in part. Many folks will pay down their mortgage either in significant chunks or by adding an additional amount each month to their standard payment.

You can think of this as a financial compromise rather than a full-blown mortgage payoff.

Is Saving Too Complicated?

There are many who argue that saving money is too complicated. Most of us would like to save money, but there are many things to consider.

One of the biggest concerns is where you should invest your money if you have excess cash to invest. Since the 2008 crash, a significant amount of people have been concerned about losing money in the stock market, especially if they are nearing retirement age.

Mortgage Interest Deduction

Don't forget that if you pay off your mortgage, you'll lose your mortgage interest tax deduction. For some people, this could be a decent chunk of change.

If you are unsure how losing your mortgage interest deduction will impact your finances consult with a professional accountant or tax advisor. It should at least be on your radar as a consideration.

Final Thoughts

When looking at potentially paying off your mortgage, you should also consider if you have any other debts to pay off. Paying off the mortgage and not your credit card is not such as a smart idea. Don't rush into anything. Instead, take your time and make a list of all of your debts. Paying off smaller loans and debts can save you a surprising amount of money every month.

Paying off a mortgage should be reserved for those who have no financial worries. The decision is more about whether it makes more fiscal prudence in the long run based on an overall financial position in one's life.

Other Mortgage Resources Worth Reading

Here are other mortgage and financial articles that will you through the home buying/mortgage process:

  • What do you need to apply for a mortgage - see the documents you are going to need to provide to a lender in order to get a mortgage on a house. These are the things that nearly all lenders require in order to grant a loan.
  • How to pick a loan term for your mortgage - do you know some of the most important considerations for choosing a mortgage loan term? In the article at Active Rain, learn some of the best tips for selecting the right length for your home mortgage.
  • Can you purchase a home with lousy credit - most people think you can't buy a home if you have bad credit. That is in fact a mortgage myth. Find out what you need to know about buying a house when your credit is not as good as other borrowers.
  • Frequently asked mortgage questions - what are the questions that most borrowers ask their lender? It is essential to have the answers that make your feel comfortable about the mortgage you're going to be committing to.

Use these additional mortgage resources to make excellent decisions when getting a home loan. Being educated about the financial aspects of a home purchase is vital to your success! So many people make bad mortgage mistakes that could be easily avoided.

By reading these articles, you'll better understand what it takes to have a successful real estate transaction.

About the author: The above Real Estate information on the advantages and disadvantages of paying off a home mortgage was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at [email protected] or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for the last 35+ years.

Are you thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.

Bill Gassett is an authority in the real estate industry with 38 years of experience. Bill is well respected for his informative articles for buyers, sellers, and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, the National Association of Realtors, Inman News, Newsbreak, Credit Sesame, Realty Biz News, and his own authoritative resource, Maximum Real Estate Exposure. He has been on of the top RE/MAX agents in New England over the last two decades.
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