When to Not Pay Off Your Mortgage Early

Blog posted On July 01, 2021

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If you had to choose between paying a mortgage and being mortgage-free, most of us would opt for the latter. Being free of monthly mortgage payments sounds ideal, but there are a few factors to consider before you start making extra payments.

Pros of paying your mortgage off early

There’s one obvious benefit of paying off your mortgage ahead of schedule – it eliminates a large expense from your monthly budget. With less money tied up in debts, you have more freedom to use it how you please. Whether you want to travel more, invest in stocks, or just add money to your retirement savings, without a monthly mortgage payment, you’ll likely have more financial freedom to help you reach different goals. It also alleviates a psychological burden. If you have multiple debts piling up, it’s common that your stress levels increase as well. Not having to worry about paying the mortgage bill is one less thing on your mind. Plus, you’ll have 100% equity in your home – boosting your net worth and increasing your financial power. Owning a home is likely your most valuable asset. The more you own in your home, the more valuable it will be.

Cons of paying your mortgage off early

Paying your mortgage off early doesn’t sound like it would have any cons, but there are actually several factors to consider. When you pay your mortgage off early, you’re likely putting larger sums of money down to speed up the repayment process. Consequently, you’re likely putting less money toward your savings. Depending on what you’ll earn in interest on your savings account, you could be sacrificing a lot of money.  Plus, savings are liquid – meaning that if you need money, you could sell some stock, take out some money, and use it for whatever you need. Your money in a house isn’t liquid. So, if you spend all of that money paying off your mortgage, you can’t really get it back unless you sell or rent your house. But if you have a loan like the All in One Loan™, you might have more access to equity with your mortgage.  Keep in mind, if you pay off your mortgage, you will no longer be eligible for mortgage interest tax deduction. This allows you to deduct your mortgage interest from your federal taxes.

Alternatives to paying off your mortgage early

One of the benefits of paying off your mortgage early is the psychological relief. Yes, it will free up your monthly budget, but sometimes that extra money towards your mortgage could be better used somewhere else. “Sadly, the math tells us it’s almost always better to invest in other places than in your mortgage,” says Richard Bowen, CPA and owner of Bowen Accounting in Bakersfield, California.

If you have high-interest debt like credit card debt, you should focus your money there first. High interest debt will cost you more the longer you take to pay it off, so if you spend a lot of money paying off your mortgage, it might take you longer to pay off your other debts. If you have the chance to pay down debts, start with the higher interest debts. Typically, mortgage interest is much lower than credit card interest.  One way you can pay off high interest debt is through a cash-out refinance. With a cash-out refinance, you exchange some of the equity you have in your home for money. Then, you can use that money to pay down other debts like credit card payments or student loans.

If you don’t have any high-interest debt and don’t want to invest elsewhere, another way you could use extra money is by purchasing an investment property. An investment property is a good way you can increase your cash-flow. However, you will be in charge of any maintenance or other costs, so make sure that your budget is adequately prepared. 

Paying off your mortgage early might sound like a huge weight off of your shoulders. But before you commit to making the extra payments, assess other ways you could better use that money. If you would like to explore our cash-out refinance options, let us know.


Sources: Bankrate, Bankrate