Early mortgage payoff is a very tempting thing to do. Who wouldn’t want to be free of their monthly mortgage payment. Who isn’t tempted by the thought of owning their home free and clear of the bank. Although the desire of being mortgage free is a very worthy goal, the saying “just because you can doesn’t mean you should” might be applicable in this case. Why would this be the case?
* Right now, depending on your interest rate, a 30 year fixed rate loan is a great deal. Assuming your income will increase over the life of your mortgage and your payments will not, the effective cost of your mortgage will be decreasing over time. Again, a fixed rate mortgage is the key. As inflation continues to grow, your payment stays the same and your payments cost you less in terms of buying power.
* Instead of paying off your mortgage early you could be investing the money. Investing let’s say $600 at 8% for 15 years will earn you $209,000. Whereas applying the same amount to a $200,000 mortgage at 6.5% with 15 years left will save you approximately $173,000. The $36,000 you could save is worth considering when deciding whether to payoff your mortgage early.
Having said this, there are some powerful advantages to early mortgage payoff:
* Investment takes discipline. Many people have a strong desire to pay off their mortgage. This dedication can be a solid motivator to have the discipline to continue toward their goal. This desire might be weaker when associated with a less personal generic investment.
* The peace of mind you receive from having paid off your mortgage is not to be underestimated. By freeing yourself from the monthly payment you can, for the most part, assure that regardless of your employment situation your home is always yours. That peace of mind is priceless.
If your mortgage interest rate is greater than the potential investment interest rate, then the obvious decision is to invest in your mortgage and pay it off early. But even so, you could have other debts that extra money could be better applied against. Consider carefully postponing your mortgage payoff and applying that additional amount to any high interest rate credit card or other loan to pay them off first. Then feel free to go at your early mortgage payoff.
About the Author
Alan Pavan invites you to discover the secret to your debt free future at: Get Help With Debt