Paying off a mortgage early seems to many as a financial dream. This is a huge debt that if paid off early, can seemingly set you off to financial freedom. However, there are things to consider before paying off a mortgage early. This is a decision that should be carefully sought out with a financial planner or tax professional.
What Are Some Fast Ways to Pay off your Mortgage?
If you pay off a mortgage early, those funds will no longer be available for investment purposes. If your mortgage is set at a low-interest rate, it may be beneficial to keep paying it and enjoy the tax perks. When you pay your taxes you have the ability to deduct mortgage interest on your tax form. If you are paying a low interest for your mortgage but have a higher interest, let’s say about 15% or greater for student loans or credit card debt, it may not make sense to pay off the mortgage early. I think that if you are fortunate enough to be set into a low-interest rate, it may be better to use those extra funds for investment purposes.
Does it make sense to pay it off early?
There are benefits to paying off a mortgage early. It is a feeling of great freedom to be financially free from such a great debt. If you do not owe on anything else, this may be a good route to consider. Remember though that even if you are debt free, to consider if you are getting greater tax benefits by deducting mortgage interest. It is important to do the math, and see what will work out for you in the long road.
You can also take a middle of the road approach, where you throw in extra money towards your mortgage, but you do not completely pay it off. This will allow for more financial freedom, but you will still get the same tax benefits by putting down your mortgage payment on your tax forms. Even if you have the financial freedom to pay off your mortgage early is it worth the financial risks for what is to come in the future? I would not touch your 401k to pay off a mortgage, which can double during retirement.
Even if you have the extra cash flow without touching your 401k, do you have enough money to retire? Is paying your mortgage actually a financial burden? Would you be able to survive in the event of an emergency, such as losing one’s job, or getting ill? This seemingly tempting financial freedom can potentially set off more problems than the benefits. I encourage people to talk this over with a trusted financial adviser or tax professional.