Paying off your mortgage early could save you money on interest paid over the life of the loan. It can also free up money to put toward other goals, like saving for retirement.
Despite these perks, though, prepaying a mortgage isn’t right for everyone, and there may be some downsides to this strategy.
Are you thinking of paying off your mortgage early? Check out some pros and cons to consider before you do.
Pros:
- You’ll pay significantly less interest. You could potentially save thousands of dollars by minimizing the interest you pay during the loan term.
- You’ll get rid of monthly mortgage payments. Not having a large monthly payment could lighten the financial pressure on your household.
- You’ll free up funds for other goals. You may be able to put more toward retirement, your kids’ college accounts, your emergency fund or even your next vacation.
Cons:
- There may be prepayment penalties. Be sure to read the fine print to see if your lender charges fees for paying your mortgage off early.
- You’ll lose the mortgage interest tax deduction. Keep in mind that you only get this write-off if you itemize your returns, but it only lasts as long as you’re paying your mortgage (and the interest that comes with it).
- Investing may net you more profit. The stock market typically offers returns of about 10% annually. Mortgage rates are lower than that currently, so you may be able to make more from investing than you’d save by prepaying.
If you’re interested in putting your extra money toward the down payment on a second home or investment property instead, please get in touch.