Should you Pay your Mortgage Off Early?

If you have extra cash or have room in your budget to pay extra toward your mortgage, you might wonder if you should pay your mortgage off early.

There are many instances when you can and should pay it early and times you shouldn’t. Keep reading to learn what it means to pay off your mortgage early and what you should consider.

What Does it Mean to Pay Your Mortgage Off Early?

When you borrow a mortgage, you borrow it for a specific term. For example, you may borrow it for 30 years. That means you’ll make monthly principal, interest, real estate tax, and insurance payments for the next 30 years.

But what happens if you want to pay your mortgage off early?

The good news is that most lenders and loan programs allow it today. Prepayment penalties are a thing of the past in most cases.

This means you can pay your mortgage off whenever you want. So, for example, if you have a 30-year loan but can pay it off in 15 years, you’re more than welcome to do so.

But does it always make sense?

Considerations Before Paying Your Mortgage Early

It probably won’t surprise you that paying your mortgage off early doesn’t always make sense. In some cases, you’re better off focusing on other financial goals.

Here’s what to consider.

Do you Have an Emergency Fund?

An emergency fund holds funds for emergencies. If you don’t have a fund with at least three to six months of expenses saved, don’t focus on paying your mortgage off early.

Instead, save funds for emergencies such as job loss or falling ill. If you suddenly cannot work, it won’t matter that your mortgage is paid off; you’ll still have other living expenses you must cover. If you tie up all your capital in your home, it could cause financial issues.

Do you Have High-Interest Debt?

If you have a lot of high-interest consumer debt, pay it off before paying off your mortgage. Credit card interest rates are usually much higher than mortgage rates, so you don’t do yourself any favors by paying off the loan with the lower interest charges.

Do you Have Opportunities for Other Investments?

If you have a relatively low mortgage rate, you might see a better return on your investment somewhere else, such as in the stock market.

However, investing in stocks isn’t for everyone. Some people prefer to get the debt off their backs versus taking a risk in the stock market.

What will you do with Your Money After Paying off your Mortgage?

Think about what you’ll do with your extra funds if you pay off your mortgage. Will you find another area to invest in and save for retirement, or are you likely to blow any additional capital?

If you aren’t financially disciplined, consider keeping the mortgage so you don’t spend needlessly. However, if you have an excellent plan for the funds, consider paying the mortgage off early.

Pros and Cons of Early Mortgage Payoff

Understanding the pros and cons of paying your mortgage early can help determine if it’s the right choice.

Pros:

• Reduce your monthly expenses
• Save significant amounts of money in interest
• Provides peace of mind getting out of debt
• You can tap into your home’s equity if you need access to the capital

Cons:

• Harder to access your funds if you need them fast
• There may be an opportunity cost from other missed investments

How can you Pay your Mortgage off Early?

If you decide paying your mortgage early is best, here are a few ways to make it happen. Contrary to what most people believe, you don’t need to pay it off in one lump sum.

Make an Extra Payment Annually

If you receive a work bonus or tax refund, you can apply the funds to your mortgage, paying the balance down faster and shaving years off your term.

Make Bi-weekly Payments

Bi-weekly payments equal 13 monthly payments or one extra payment per year. To make bi-weekly payments, divide your mortgage payment in half and pay one-half every two weeks. There are 52 weeks in the year, so you’ll make 26 bi-weekly or 13 monthly payments.

Make an Extra Payment Monthly

You can choose how much to pay extra toward your mortgage monthly. It doesn’t even have to be the same amount each month.

For example, if one month you have an extra $500 and the next only $100, you are free to pay what you can toward your mortgage. Every payment will reduce the principal balance, decrease interest costs and shave some time off your loan.

Refinance into a Shorter Term

Of course, you can always refinance your mortgage into a shorter term. For example, if you have a 30-year term but can afford a 15-year term, you could refinance into a 15-year loan, saving a lot of money on interest and paying the loan off in half the time.

Make 15-Year Payments

If you’re worried about committing to a 15-year payment, you can use a mortgage calculator to make 15-year payments but keep your 30-year term. This allows you to pay your mortgage off early at the higher 30-year interest rate. Some people need the peace of mind of having the 30-year term for the lower required payment.

Final Thoughts

Paying off your mortgage early can provide incredible peace of mind and help you focus your financial goals elsewhere. It works for some people, but not everyone. So first, ensure you’re in a good financial position to put your money in your home.

At Innovative Mortgage Brokers, we can help you navigate the complex world of mortgages, particularly in Pennsylvania (PA) and Florida (FL). We possess extensive knowledge of the ever-changing mortgage market and have access to a wide range of lenders and loan products. By working closely with you to analyze your current financial situation, we can provide tailored advice and recommend the most suitable mortgage options for your specific needs.

One of the key benefits of partnering with us is our ability to leverage cutting-edge technology and tools for a more efficient and accurate assessment of your financial health. At Innovative Mortgage Brokers we can quickly evaluate factors such as your credit score, income, debt-to-income ratio, and property value, which are crucial in determining your eligibility for various mortgage products. In addition, we stay updated on the latest mortgage trends, regulations, and programs, ensuring that you receive the most competitive rates and terms available in Pennsylvania and Florida.

Furthermore, we have a strong lender network within the industry, allowing us to connect you with the right lenders and negotiate better deals on your behalf. This personalized approach not only saves you time and effort but also increases your chances of securing a mortgage that aligns with your financial goals and homeownership dreams. Whether you’re a first-time homebuyer, looking to refinance your existing mortgage, or interested in investment properties, we can be an invaluable resource in guiding you through the process and helping you make well-informed decisions. Give us a call, and let Innovative Mortgage Brokers show what we can do for you.