Are you torn between riding out the remaining term of your mortgage, and paying it off early? Consider these factors before making up your mind.
Every home owner looks forward to the day that they hand over their last mortgage check and finally call their house their own. But if you had the option to pay it off sooner than later, would you do it? Or rather, should you do it?
It might sound ideal for you to either pay off your remaining mortgage in one lump sum, or at least make bigger payments every month, but you have to be careful. Here are some considerations to think about before deciding to go for it.
In the event of an emergency, would you have enough money left over?
How is your income budgeted across all of your necessary payments? You might think that allocating large amounts of money to your mortgage now is a great idea since you have a bit more left after other expenses, but you should consider emergency situations first. In the event that you lose your job or someone in the family gets sick, do you have any savings that will tide you over during these times? Re-calculate your monthly expenses first, this time including a savings fund for emergencies, and then determine if you will be able to put more money towards making extra mortgage payments.
Are you paying for other huge debts that are accruing high interest?
Fixed-rate mortgages that span for 30 years normally have interest rates of 4%, whereas 15-year fixed-rate mortgages, as well as adjustable rates, have much lower interest rates. On the other hand, credit card debt accrues interest rates of over 10%, while other debts like payday loans have higher rates. You might consider paying off these loans first before paying off your mortgage early, since these loans are costing you more and more the longer you put off paying them.
How close are you to retiring?
Consider whether you’d benefit more by contributing to your retirement fund or by paying off your mortgage sooner. If you’re close to your retirement age, it means that you’ve been paying your mortgage for quite a while now, and are probably not getting the benefit of tax deduction. If you’re right at the retirement age, your options are slim to none when it comes to buying a retirement plan with tax advantages. In this case, it might be a good idea to make large mortgage payments since you don’t really know how well your extra money will do in other investments during the remaining term of your mortgage.
The knowledge of having paid your mortgage and officially owning your home can be great, but make sure that this decision won't compromise your present financial health.
Jillian Cariola, Writer
(cover image by neil hoskins)