Paying Off Your Mortgage Early – Good idea?

While paying off your mortgage early can reduce or eliminate your debt, there are other things that you should consider when deciding whether or not to pay off your mortgage early. Here are a few:

Interest rate and structure of your current mortgage

One of the most important factors in deciding whether to pay off your mortgage early or not is the current interest rate and structure of your mortgage.  If your rate is low and fixed for the term of the mortgage, your financial payoff is limited by paying off your mortgage early.

However, if your current interest rate is high or you have a variable rate mortgage where the rate will jump in the near future, paying off your mortgage can provide significant financial benefits to you.

Interest deduction calculation has changed

Congress passed a new tax law at the end of 2017 that increased the standard deduction significantly.  If you have previously itemized your expenses to take the deduction for home mortgage interest, you may find it more advantageous to take the higher standard deduction.

If this is your situation, your home mortgage deduction is worth less to you and makes it more attractive to pay off your mortgage early.

Cash reserves

The cash you use to reduce or eliminate your mortgage will reduce your overall liquidity that you may need for emergencies and retirement savings. Review your expenses for the future to make sure you have the cash required for these expenses and any contingencies that may come up.

Planning to move in the near term?

If you are planning to move in the next few years, the benefits of paying off your mortgage early are reduced.  Having the additional cash available for your new home and any upgrades you want to make may be a better use for the cash.

Watch out for the fine print

Your mortgage may come with prepayment penalties that can reduce or eliminate the financial benefits you can receive by paying it off early.

"Education is the key to making informed financial decisions." -- Elliot Goldberg, Independent Registered Investment Advisor (610) 999-3599
“Education is the key to making informed financial decisions.” — Elliot Goldberg

Please call me at (610) 999-3599 for a no-cost, no-obligation phone consultation to discuss your situation in more detail.


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