A 30-year mortgage can be understandably daunting. Wanting to pay it off faster is normal, but it’s important to consider your finances before making the call. In some cases, it can be more beneficial to make the minimum required payments. Here are some factors to consider when deciding if you should pay off your mortgage early.
Frees Up Income to Use Elsewhere
Once your home is paid off, not only do you completely own your home, but you can also start using that money for other things. Whether you reinvest it or use it for fun, no payments mean more money in your pocket to use however you want.
Saves Money on Interest
Making additional mortgage payments or payments higher than the minimum can reduce the amount of interest you owe by thousands of dollars, even if it’s a small amount. The less time it takes to pay off the loan, the more you’ll save. Just make sure to put the extra funds towards the principal.
Provides Peace of Mind
Some people prefer the peace of mind of not having debt and having full ownership of their home. In that case, it can be more beneficial to prioritize making higher or extra payments.
Allows a Home Equity Line of Credit
A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home to use for large expenses or to consolidate higher-interest rate debt on other loans. A HELOC can be a good option, especially for costs like home renovations, but they can also be risky. The risks of a HELOC include variable interest rates, higher monthly payments, and the potential to spend beyond a person’s means.
Ties up Funds in Case of Emergency
If you put more money into extra mortgage payments, that means you’ll have less available funds for other things like unexpected car repairs or medical bills. To prevent this, make sure to have an adequate emergency fund.
Not Eligible for Tax Deduction
People with mortgage payments are eligible to reduce their taxable income by the amount of interest paid on the loan during the year, along with some other expenses. However, if you pay off your home early, you will no longer be eligible.
Missing Higher Returns on Other Investments
Choosing to lessen the interest amount on your loan by making higher or additional payments may not save as much as you could make by contributing the same amount to other investments like retirement or stocks.
Possible Prepayment Penalties
Some lenders charge prepayment penalties for paying off mortgage loans early. Sometimes this cost can be higher than what could be saved in interest. In some cases, this penalty expires a few years after you start making payments, so it’s important to check your contract and talk to your lender.
If you are considering paying off your mortgage early, make sure you consider your personal financial situation to ensure you make the best decision for you. If you have any questions about your mortgage loan, get in touch with one of the professionals at Coastal Custom Mortgage today.