Paying off debt as soon as possible is always is a good thing --but does that rule also apply to mortgage debt? Is making an extra payment each month to pay off the mortgage early worth it?
In this week's post, we'll explore the pros and cons of paying off the mortgage early.
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Pro: Save On Interest
Making an extra payment to the principal balance of your mortgage helps save you money by lowering the amount of interest you pay. Although you can make an additional payment towards your principle at any time, this method is most effective when you first get your loan. This is because the principle is higher at the beginning of the loan. Hence, you are paying more in interest. Making an extra payment will result in saving in interest over time.
Con: Miss Out On Other Investment Opportunities
If you have the extra cash to put toward making an extra payment, that means that you have the extra cash to invest. Instead of trying to save money on your mortgage, you could, instead, making your money work for you. Making additional contributions to your 401(k), especially when you're 10 years or more away from retiring, can result in significant earnings --sometimes more than what you could save by paying off your mortgage early.
Pro: Peace Of Mind
Reducing monthly expenses brings peace of mind and considering that your mortgage payment is likely your biggest expense, you can start to imagine how good it would feel to eliminate it early. Also, when calculating the cost of living, inflation, and what the average, fixed, retirement income is, getting rid of a housing expense becomes even more attractive.
Con: Prepayment Penalty -Sometimes
Some mortgages carry a prepayment penalty, meaning that you're limited as to how much you are allowed to pay off and when. Though this may seem unfair, it's not all bad news. The types of loans that carry prepayment penalties often have lower interest rates or other perks that save you money.
When it comes down to it, deciding to pay off your home loan early is a personalized is not a one-size-fits-all decision. It depends on your ability to pay, the type of loan, how mature your loan is, whether your extra cash would be more useful in other investments, how close you are to retiring, as well as other factors.
Even if you don't currently own a home, if you plan to pay off your mortgage early, then you'll want to make sure you choose a home loan that allows for prepayment.
Call us today for expert and personalized home loan guidance, and together we can find a mortgage option that works for you.