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Pros & Cons of Paying Off Your Mortgage Early

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Pros & Cons of Paying Off Your Mortgage Early

You may feel excitement at the prospect of paying off your mortgage early if you are in a position to. However, there are some drawbacks to it that you should be aware of before you decide whether you should or not. The benefits may outweigh those drawbacks for you or they may not. Let’s look at the pros and cons of paying off your mortgage early

Pros of Paying Off Your Mortgage Early

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  • Pay Less Interest
    • Depending on how far you are in paying your mortgage you can stand to save a lot of money in interest. The amount of interest you pay each month declines slowly over the life of the loan so the farther you are in the loan the less you save overall, but you still save substantially. 
  • No More Monthly Payments
    • With no more payments going toward your mortgage every month, that frees up that income to go toward savings, other large expenses you may have such as a vehicle, or even necessary renovations to your home to increase its value, and therefore your equity. 
  • Weight Off Your Shoulders
    • Without the large debt of a mortgage hanging over your head, you can breathe a little easier and sleep better and night. A big debt is paid off completely and you can focus on more important financial matters, setting other goals. If you aren’t already retired, you can focus on saving for that, or if you are retired, it makes stretching your retirement money a little easier. 

Cons of Paying Off Your Mortgage Early

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  • You Can’t Claim Your Tax Deduction Anymore
    • You can claim the interest paid on your mortgage each year as a tax deduction and once your mortgage is paid off, you won’t be able to claim that anymore. Of course, as you get farther into paying your mortgage, the amount of interest you pay decreases so you may not be getting much of a deduction anyway. If this is the case, this disadvantage may not be much of one. 
  • Using Up Your Available Cash
    • You may be getting more equity in your home by paying it off completely, but if you use up all of your available cash to do that, you won’t have that cash on hand to be able to pay for any unexpected expenses that arise such as repairs that your home may need, or even a vehicle expense. 
  • Prepayment Fees
    • Some mortgages come with stipulations around prepayment. If you pay off your mortgage early, they may charge you a fee. This fee can be rather hefty depending on your loan terms. It’s important to talk to your lender before deciding to pay off your loan early so that you are aware of this fee, if there is one, and how much it might be. 

If you are contemplating paying off your mortgage early, you may want to weigh these pros and cons. Some may apply to your situation more than others so you may have more pros than cons or vice versa. The decision, ultimately, is yours to make, but will impact the rest of your life. So it is definitely an important one to consider carefully. 

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