Paying off your mortgage early sounds appealing and in some cases is a good choice, but there are several reasons you shouldn’t do it. Depending on your financial situation, it may be more beneficial for you to keep paying your mortgage month to month, as it was agreed upon. Of course, paying it off early will rid you of a very large monthly bill. But if you have other debt, or don’t have any other savings, this move can interfere with other areas of your financial situation, making your life harder. Here are the most important reasons why paying off your mortgage early is not recommended.
Reasons to Not Pay Your Mortgage Off Early
- You have other debt. Because interest rates on consumer loans, such as a car loan or a credit card are much higher, it is recommended that you pay those off first. For example, it would be to your advantage to pay off a loan that has a 15 percent interest rate before paying off your mortgage which has a 5 percent interest rate. Your mortgage interest may be tax deductible, unlike interest on a credit card debt. So, before you even start to consider paying off your mortgage early, make sure that you have paid your other debts.
- You will be left without savings. Paying off your mortgage early will make things easier for you because you won’t have that large monthly payment to worry about anymore. But if this leaves you with no savings, this puts you at great risk in the event of a job loss or illness. Also, you could use that money to beef up your retirement savings, or start a college fund for your children.
- You won’t be earning interest on that money. Paying off your mortgage early will earn you zero return. Placing that money into a savings or retirement account will earn you money over time. It won’t be a significant amount of money, but it will still be better than paying off your mortgage and earning nothing.
- There’s a chance that you will move in the near future. This mostly depends on each individual or family, but studies have shown that most people live in a house for 5 to 7 years. Paying off a mortgage early if you don’t plan on living in the home for more than 30 years is not very beneficial. If you are selling your home after only a few years, you will get back all the money that you paid each month.
- Inflation will make your overall loan value cheaper. Because inflation rises a few percent per year, as time goes on, your mortgage loan will become cheaper. The monthly mortgage payment that you made this month won’t have the same value as it will 15 years from now. As prices for everything increase over time, your mortgage payment will remain the same.
Paying off your mortgage also has a few advantages, the most important being that you will have more peace of mind. Not having to worry about that large monthly bill and being free of debt can make your life a lot easier. But, many times, doing the opposite and not paying off your mortgage early can be very beneficial as well. Investing that money into something else, or simply using your money for something else, can have more financial advantages than simply paying off your mortgage early. This decision largely depends on each person’s financial situation and future plans, so it is very important to understand what paying off your mortgage involves before going down that road.