Should You Pay Off Your Mortgage Early ?

Spread the love

Mortgage is one of the main financial burden which each buyer must shell out month after month and is a drain on your financial resources. From the very first day you took mortgage, the interest start piling up until you pay off the mortgage which generally is a pretty long period. Being debt free is a refreshing feeling and a dream of every individual. Sometimes in life you have spare monetary resources, and your first intuition is to pay off all your debts and enjoy a debt free life. But should you go for early payment of your mortgage depends upon number of factors enumerated as below: –

Your current liabilities and debts: – First factor is to review your current liabilities and debts. If you have credit card bills outstanding and other short-term debts borrowed at a high rate of interest, it is always better to pay them off before you decide to go for early payment of mortgage because interest rate is generally lowest in mortgage.
Your retirement plans: – It is always a good idea to fund your retirement plan before you decide to pay your mortgage at an early date than original schedule. Once your retirement plan is ready your next and logical step is to wind up your mortgage and enjoy excess cash every month at your disposal.
Prepayment penalties: – You must go through your mortgage condition and find if there is any prepayment penalty, if so, how much and whether it is still worth it to go for it.
Tax considerations: – Generally you are allowed tax deduction on the interest you pay on mortgage. Once you decide to pay your mortgage early, you should look at the impact on your tax liabilities.
Opportunity cost: – In economics opportunity cost is defined as return from next best alternative.
Once you have spare cash to pay your mortgage early you must look at the next best alternative to utilize that spare cash. Suppose you invest that cash in some productive business or keep it in saving, what return do you expect from this investment or saving. If return is more than the rate of interest in mortgage, it is better not to go for early payment of mortgage. Rather you should go for alternative opportunity and earn high return.
Other factors: – Last but not the least you should consider your liquidity position. You should not trade off money kept for rainy day all at once in return for few extra bucks you will save by paying your mortgage early. If paying mortgage early drains off all your available resources, simply avoid it and continue to enjoy your credit worthiness in the market and a good credit score by paying your mortgage regularly at scheduled intervals.