February 28th, 2023 9:10 AM by Sam Kader MLO130505
Here are some other factors to consider whether to pay off your mortgage early.
Can you pay off your mortgage early? Prepayment penalty is no longer a practice nowadays but do check with your lender if your mortgage has one. Knowing this information upfront can help you map out a payoff plan that works for you and your lender or servicer.
Will other investments beat paying off a mortgage early? What if instead of paying off your mortgage early, you invested the cash elsewhere? Mortgage rates are at all-time lows compared to the annualized return for the S&P 500 at about 10% over the last 90 years. A potentially better use of the funds might to take the cash you'd use to pay off your mortgage and leverage it into buying a cash-flow positive property like multi-family real estate or single-family homes that have the potential to offer higher long- term returns.
Will all your cash be tied up in the mortgage? Before taking a large chunk of cash and using it to pay off a mortgage early, consider its liquidity. A house is nonliquid asset and it can take months or longer to sell the property. In addition, maintaining a cushion that protects you for at least six months before you consider using a large portion of y our liquidity to retire a mortgage early.
How will you use the money if you don't pay off your mortgage early? It might make sense to pay off your mortgage if you lack the discipline to use it wisely. Your home can be a forced-savings tool and making extra mortgage payments can save thousands of dollars in interest over time and accelerate equity building in your home faster.
How much do you value peace of mind? Sometimes it's less about the bottom line and more about peace of mind. If you own your home free and clear that can provide benefits that can't be measured in financial terms. For many eliminating a monthly mortgage payment ahead of retirement can provide mental relief when considering living on a fixed income. Another potential advantage is the ability to borrow against the equity in your home through Home Equity Line of Credit (HELOC) - providing a source of emergency income as well as allowing you to make home improvements o make progress towards other financial goals.
Here are some pros and cons to consider:
Pros.
Cons.
Additional tips to pay off your mortgage early.
In conclusion - when considering whether to pay off your mortgage early, it's important to figure out what works best for your situation and is more likely to help you reach your short and long-term financial goals. Sometimes, with financial planning, it's not a straight assessment of what's best by the numbers. People want to feel good about where their money is going no matter what the spreadsheet says. For some, owing money causes stress and paying off a mortgage early can bring peace of mind. For people nearing retirement, a paid off mortgage means they have that much more free cash flow from their fixed income when they stop working.