Your mortgage may come with a 15- or 30-year term attached to it, but that doesn’t mean you have to wait that long to pay it off. In fact, if you have the funds or the will to make it happen, you can pay off your mortgage much sooner than that. But is prepaying on your loan a good move? Any benefits depend on several factors, including the loan’s interest rate, your financial situation and more. Let’s look at the pros and cons of paying off your mortgage early:
Pros
- More cash flow: Once your mortgage is paid in full, you’ll have fewer overhead costs on your home and lower monthly living expenses.
- Reduced financial stress: By eliminating your mortgage bill, you’ll have more disposable income available.
- Increased equity in the home: A paid-in-full mortgage means you own the home outright and can sell it or turn it into a rental property at any time.
Cons
- Loss of tax benefits: Contributing extra funds to your 401(k) would have more tax advantages, and you’ll lose the mortgage interest deduction.
- Reduced liquidity: Cashing in on your home equity is more difficult than accessing a savings account or rainy day fund.
- Savings starvation: By pouring all your money into your mortgage, you’re likely starving other savings and investment accounts in the process.
Want to pay your mortgage off early? There are a few routes you could take. Refinancing is one great way to shrink your loan term and pay off that balance in less time, though it may still take a few years. You can also ask about an accelerated payment plan, or consider using savings or investment funds to pay off your balance.
After a quick mortgage application, the right loan officer should answer the following questions for you. This is a safe place because you have not found a home to purchase yet.
- What are the steps to buy a house?
- What’s the monthly payment for my new home?
- How much money will I need for down payment?
- What are the closing costs for my new home?
- How much will my closing costs be for my new home?
- How much house can I afford to purchase?
15 or 30 years?
If paying off your loan sooner is important to you, a 15-year mortgage might be a good fit. According to Marc Giles, a top loan officer in Westchester, NY, these mortgages typically have a lower interest rate, but you’ll have a higher monthly payment due to the shorter loan term.
If you need (or want) a lower monthly payment, a 30-year mortgage might be better suited to your lifestyle.
