The Pros and Cons of Paying Off Your Mortgage Early

Whether you’ve come into a lump sum that will cover the remainder of what you owe, or you are intending on chipping away at your mortgage by paying more than expected each month so that you can shorten the term, paying off your mortgage early may seem like an obvious win. However, there are some things to consider that mean that your money could be better spent elsewhere. 

Here’s what you need to know about the pros and cons of paying your mortgage off early.

Advantages Of Paying Your Mortgage Off Early

There are quite a few advantages to paying your mortgage off early. These include:

Becoming Debt-Free More Quickly

Nobody likes being in debt, and your mortgage is probably the largest debt you will ever have in your lifetime. If you pay your mortgage off early, you could become debt-free sooner than other homeowners you know and can relax knowing that your home is paid for in full. If your financial circumstances change, your property can’t be repossessed.

No More Monthly Payments

Most people are used to paying for some of their bills in monthly instalments, and your mortgage is probably your largest monthly expense. By paying your mortgage off early, you can free up more disposable income month to month, which you could use however you see fit or simply save for your future.

Reduce Your Total Loan Cost

All mortgages come with interest. This is a percentage that your lender will charge for the loan and can add tens of thousands of dollars over the lifetime of an average mortgage. Paying your mortgage back early means that you won’t have to pay interest on the months that you’ll no longer be paying monthly instalments in.

Disadvantages Of Paying Your Mortgage Off Early

Paying your mortgage off early may seem like a no-brainer, but before you get your checkbook out, there are a few things to bear in mind….

You Could Be Paying Off More Expensive Debts First

Many people have more debt than just their mortgage. If you have car finance, credit cards or other unsecured loans, it may actually save you more money if you pay these off first. Although the amounts may seem insignificant compared to your mortgage, loans against unsecured and lower-priced products often come with much higher interest rates. And by clearing these, you could reduce your monthly expenses and still put the extra money towards your mortgage!

You Could Be Liable For Early Repayment Fees

The idea of paying your mortgage off early may have seemed like an impossible task when you first took out your homeowner loan, so you may not have paid much attention to what could happen if you choose to settle it before it ends. Most contracts will come with a clause that states that you will be liable for an early repayment fee. Depending on how close your mortgage is to running its course, it may be worth weighing up how this early repayment fee compares to paying down the debt on your current repayment schedule.

You Could Miss Out On Important Benefits

There can be some tax advantages to having a mortgage, and these could quickly become a thing of the past if you choose to settle your homeowner loan earlier than the agreed term. For example, you’ll no longer be able to deduct interest paid on your mortgage from your taxable income for the year.

A San Diego mortgage calculator will help you learn just how much you could be paying over the course of your homeowner loan, while our knowledgeable real estate team would be happy to meet with you to help you to decide whether you should pay your mortgage off early. To schedule an appointment, call Collins Coastal San Diego at 858.252.0200 to reach our office in San Diego, California. 

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