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Paying Off A Mortgage: Is Earlier Better?
Owning a home doesn’t always mean carrying a mortgage. In fact, according to the Federal Reserve, a third of homeowners in America don’t. Maybe you’ve been thinking about using that nest egg or certificate of deposit that isn’t really earning interest anymore to pay off your loan early and own your home free and clear. But should you? Paying your mortgage off early may seem like a great idea. We’ve all heard the less debt, the better, right? However, there are some major differences between paying off short term debt like a credit card and paying off a mortgage, which is long term debt. First, consider whether you really have the money to do so. Is there any other reason you might need the funds you have saved? In the case of an emergency, do you have enough cash left over after paying off your debt to cover it? It could cost hundreds or thousands of dollars to borrow it back, if you even qualified for a new loan in the first place. Also, do you really want to pass up a low mortgage rate? You might never get a better one, according to financial advisors. Compare rates before making a decision. Receiving a large amount of income, from a business sale or inheritance for example, can often inspire thoughts of writing off a check to your lender. But could your money be better off elsewhere? Are you maxing out other avenues of saving, such as 401(k), retirement accounts, and education savings plans? Is paying off your mortgage early more beneficial than investing in your portfolio? Taxes are another factor. Interest paid on both first and second home mortgages up to $1.1 million is deductible, which can result in very cheap debt. However, if you’re in a lower tax bracket and have a high rate mortgage, it does make sense to pay it off. There’s also the psychological benefit. Not having a mortgage payment gives the feeling of more financial freedom, as well as the impression that cost of living is lower. Some homeowners may not feel comfortable retiring before the mortgage is completely paid off. At the end of the day, whether or not to pay off your mortgage early depends on your individual situation. Review your finances, and if you still feel confident after doing so, then go ahead and send off that final check to your lender. |
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