Should You Pay Off Your Mortgage Early?

With the trouble in the housing market, those that are financially stable are left wondering whether now may be a good time to pay off their mortgages. There are some definite pros and cons to early payment, and this strategy is one that must be carefully considered before taking action. Let’s look at a few of the considerations that should be thought out ahead of time.

What are the pros and cons of paying off the mortgage?

Pros

1. Interest rate fluctuations no longer matter.

For those with variable rate mortgages, the past few months have been incredibly stressful. It’s not easy to put your finances through this kind of wringer and in many cases, for those with high interest rates and burgeoning payments, paying off a mortgage early, or at least paying it down, may have many benefits.

2. Freeing up monthly income.

If your mortgage payment is taking up a large chunk of your monthly finances, paying off that loan early can help free up income that can be used for other things, such as paying down debt, or simple living expenses. For those that are finding it hard to make ends meet, dipping into savings to get rid of that high fee loan may not be a bad idea.

3. Lack of worry.

Once that mortgage is paid off, you never have to worry about interest rate changes or problems with the bank. For many people, this kind of peace of mind is more than worth the extra expense of paying off a mortgage. If you are concerned about financial stability in the future, this course of action can provide some relief.

Cons

1. Loss of tax benefits.

Since you can write off the interest that you pay on your mortgage each year, losing this ability can have a big impact on how much tax you pay. For those in a high tax bracket, this may be the straw that breaks the camel’s back. Consider carefully the tax implications that you can face by paying off that mortgage early.

2. Initial expense.

Paying off that mortgage, especially if it is still quite large, could mean that savings may have to be used. In addition to that initial expense, you might also have the loss of extra income if that account was earning interest. In most cases, this would be slight, but for those that rely on additional streams of income, this can have an impact.

3. Penalties.

Most banks will charge a penalty fee if you pay off a mortgage early, or even prepay a large chunk of what you owe. Always read the fine print before you decide to pay early to see just how much you will have to end up paying in extra fees. These may be quite large, so it is vital to take this into consideration.

Any major action requires a good deal of thought beforehand and paying off a mortgage early is no exception. Always take the time to read the fine print and ask your financial advisor about any additional implications you may be facing.

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