If you are considering paying off your mortgage early there are some things you need to consider. The first question is does your mortgage company charge a fee for early payment? If a penalty does exist for your particular loan than obviously you need to know the amount. Refinancing your mortgage into a different “penalty free” loan is one option but then again there are additional costs when refinancing to consider as well. If you do decide to pay off your mortgage ahead of schedule here are some other points to consider before making a final decision.
Everyone’s circumstances are unique but most people benefit from the various tax write offs available when one is paying a mortgage. It might be a good idea to look closely at what difference not paying a mortgage will make at tax time each year. Checking with a tax professional might be a good idea as well.
Extra Money NOW
One clear advantage to eliminating your house payment is the extra money that you will have every month. This money can be used to eliminate outstanding debt, consolidating bills, home improvements and a host of other ideas. That sounds great but you must be honest with yourself as well. Are you the type of person that is “frivolous” when it comes to spending money? Wasting money that would otherwise go to your mortgage is not usually a wise decision. If you plan to use the additional money in a beneficial manner (such as savings, investments and so on) than eliminating your monthly mortgage payment might be an excellent decision.
The Advantages of Collateral
If your home is paid in full than you have the advantage of using its entire worth as collateral. This could be a good or a bad thing. If you decide, for instance to use your home’s value to start that business you’ve always wanted than this is one way to do it. If the business works you are a genius and have made an excellent decision but if the business does not work? It’s up to you to decide what risks to take but be aware that access to large sums of money is not always a blessing.
Refinancing VS Payoff
One great way to get money for bill consolidation or a new car is to refinance your home. A refinance usually offers a much better interest rate than other types of loans and is normally easier to obtain. Keep in mind that if you pay off your home this will no longer be an option. Obtaining a new mortgage in an emergency may also be more difficult than to refinance an existing mortgage and will take considerably more time.
Improved Credit Rating
A definite plus to paying off your mortgage is that it will have a positive effect on your credit rating. Depending on your personal financial situation a better credit rating may help you to obtain future loans.
Timing is Important
Even if you are young now the day will come when it’s time to retire. If you pay your home off when you’re in your 40’s or 50’s it will dramatically increase in value by the time you reach retirement age. Many people opt to sell their home at that point in their life and begin a whole new adventure! If this is something that you have considered than eliminating your mortgage payment as early as possible would be a great plan for you.
Of course there are many other factors to be considered before making such an important decision but hopefully this will help you to decide what is right for you and your dreams.