Does it make sense to pay off your mortgage early?

When you own a home, having a mortgage hanging over your head is disturbing for many people. It’s a natural desire to pay off your mortgage sooner rather than have it running for decades. However, before making this decision, it’s essential to determine whether it makes financial sense for you. Here are the pros and cons of paying off your mortgage early.

Pros

• Saves you money on the interest of up to thousands of dollars
• You can receive a predictable rate of return, that’s equal to the interest rate on the debt you’re paying off
• It’s possible to tap the equity in your home if you need money later on
• Gives you the freedom, knowing you are debt-free
• The money you save on interest by paying off your mortgage early may or may not exceed the return you expect if you put it to work elsewhere. However, sometimes it’s not about the income you generate on other investments, but it’s more about peace of mind you get and the chance to free up cash flow for other opportunities.

Cons

• Ties up a good amount of your liquidity as well as net worth
• You’ll no longer be eligible for mortgage interest federal tax deduction
• When you pay off your mortgage early, you miss out on the potential for higher returns, which might have been the case if you had used the money in other investments.
• If the real estate market drops when you want to sell your mortgage, you may end up receiving less than you had hoped for.

Bottom Line 

Whether you decide to pay off your mortgage early or not; either choice holds some weight. While some people are okay contributing their monthly income towards a mortgage payment, others are more at peace paying off the mortgage early. Especially when nearing retirement, a paid mortgage means more free cash flow from the fixed income. So figure out what works best for you and decide what suits your situation.