When you take out a mortgage, it will have a specified term over which you must repay the balance. In most cases, this term will be 15 to 30 years in length. However, if you make extra payments, or if you decide to refinance, you may pay off your mortgage before this term is complete. If you are considering an early mortgage payoff, consider the advantages and disadvantages below before you make your decision.
Advantages of Early Mortgage Payoff
- Mortgage interest savings. When you pay off your mortgage early, you will save a significant amount of money in interest.
- Lower monthly debt obligation. Without a mortgage payment, you will have more spending money available each month.
- Peace of mind. Paying off your home provides you with peace of mind. You will never have to worry about falling behind in your monthly payments or losing your home to foreclosure.
Disadvantages of Early Mortgage Payoff
- Loss of mortgage interest deduction. Most taxpayers are able to deduct the mortgage interest they pay during the year on their income tax return. If you are no longer paying mortgage interest, you will lose this deduction.
- Prepayment penalties. Some mortgages may come with prepayment penalties, which means that you will owe a fee if you pay the mortgage off before the end of the term.
- Loss of potential investment income. Depending on your current mortgage interest rate and the availability of investments, you may be able to earn more profit by investing your extra money than you would save in interest by using this money to pay your mortgage off early.
Deciding whether to pay off your mortgage early can be difficult. While an early mortgage payoff may be the right choice for some borrowers, it may cause problems for others. If you aren’t sure whether an early mortgage payoff is the right decision for you, contact the mortgage experts at Starboard Financial for personalized advice.