Ready to pay off your mortgage? Laura explains who should pay off their mortgage ahead of schedule and who shouldn't. Learn eight ways to get rid of your home loan as quickly as possible—if it’s a smart financial move for you.
After signing a mountain of paperwork and becoming a proud homeowner, you might be eager to pay off the mortgage early. Owning a home free and clear is terrific, but it may not always be the best use of your money.
In this article we’ll cover who should pay off their mortgage ahead of schedule and 8 ways to make it happen as quickly as possible, if it’s a smart financial move for you.
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Advantages of Paying Off a Mortgage Early
When it comes to prioritizing your debt, mortgages are way down on the list. For many, that advice may seem counterintuitive because mortgages are a huge debt to carry. Let me summarize the pros and cons of getting rid of a mortgage before we cover 8 strategies to do it.
In a nutshell, the advantage of paying off a mortgage (or any type of debt) early is that you pay less interest. For example, if you owe $150,000 on a 30-year, fixed-rate mortgage at 5%, your monthly payment will be about $800.
If you keep the mortgage for 30 years, you’ll end up paying a total of $140,000 in additional interest. Yes, that almost doubles the actual cost of the property, if you have it for 3 decades.
But if you get a $20,000 windfall and use it to pay down your mortgage in the fourth year, you’ll pay off the loan in 23 years instead of 30. You cut the total interest from $140,000 to $98,000—saving about $42,000 over the life of the loan.
Disadvantages of Paying Off a Mortgage Early
But the disadvantages of paying off a mortgage early come when your money could have been better spent. Mortgages are relatively cheap debt. They also come with tax benefits that can make them cost even less. Right now the going rate for a 30-year, fixed-rate mortgage is just over 3.5%.
Once you send extra money to pay down a mortgage it’s tied up in your property. If you unexpectedly lose your job or suddenly have a large expense, you won’t be able to get that money back easily, if at all.