There are many pros and cons of paying off your mortgage early. Many homeowners would jump at the chance to pay off their mortgage if they could, but there are often many unforeseen circumstances if they do, like increased taxes and expenses. However, if you only have a few mortgage payments left it might be worth it to get it over and done with, because of the accruing interest it can put your last mortgage payment further and further away. While the homeowners market is still better than the renters market, it is important to know where you stand before you pay off your mortgage early.
For one, you could save a lot of money. A mortgage is just a fancy banker name for a home loan. With any loan there will typically be interest rates until you can pay it back in full. This is a clever way to adjust for inflation, which is important when it comes to a mortgage, because you will be making payments over a long period of time. If you pay your mortgage off early you could be saving a few hundred thousand dollars just in interest rates alone. Usually this is only worth it when you are about 10 years away from the end of a 30-year loan.
Next, by effectively getting rid of your mortgage payments you will have a lot less to pay for in terms of living expenses. This can give you more room to pay for things like vacations and other luxuries that you otherwise couldn’t afford. Or you can be smart with the extra money and invest it in the stock market or in another property and rent it out. When it comes to having extra money, it is always about finding a way to make it work for you.
Yet, if you pay off your mortgage early you will be faced with paying for your own homeowners insurance and property taxes. These expenses were usually taken out of your monthly mortgage payments. There might also be other payments and fees that you will have to pay once you don’t have any more mortgage payments. Most people don’t want to give up their mortgage for this exact reason, because often you are left paying much more than what was deducted from your mortgage accounts, especially with insurance, because rates are usually readjusted. This is by far one of the biggest downsides of paying off your mortgage payments too early.
Lastly, paying off your mortgage payments early could bump you up into a higher tax bracket. This is because you can’t deduct the interest rates from your mortgage payments on your annual income taxes. If you are thinking of buying a home it might be worth it to find the longest fixed interest rate so that you don’t have to worry about other expenses. For instance, a website called RateSupermarket has some of the best mortgage rates on the market for people looking to purchase a new home. At the end of the day, home is where the heart is and not where you burn all your money.