If you are considering paying off
your mortgage early there are some things you need to consider. The first
question is does your mortgage company charge a fee for early payment? If a
penalty does exist for your particular loan than obviously you need to know the
amount. Refinancing your mortgage into a different “penalty free” loan is one
option but then again there are additional costs when refinancing to consider
as well. If you do decide to pay off your mortgage ahead of schedule here are
some other points to consider before making a final decision.
Tax Deductions
Everyone’s circumstances are unique
but most people benefit from the various tax write offs available when one is
paying a mortgage. It might be a good idea to look closely at what difference
not paying a mortgage will make at tax time each year. Checking with a tax
professional might be a good idea as well.
Extra Money NOW
One clear advantage to eliminating
your house payment is the extra money that you will have every month. This
money can be used to eliminate outstanding debt, consolidating bills, home
improvements and a host of other ideas. That sounds great but you must be
honest with yourself as well. Are you the type of person that is “frivolous”
when it comes to spending money? Wasting money that would otherwise go to your
mortgage is not usually a wise decision. If you plan to use the additional
money in a beneficial manner (such as savings, investments and so on) than
eliminating your monthly mortgage payment might be an excellent decision.
The Advantages of Collateral
If your home is paid in full than
you have the advantage of using its entire worth as collateral. This could be a
good or a bad thing. If you decide, for instance to use your home’s value to
start that business you’ve always wanted than this is one way to do it. If the
business works you are a genius and have made an excellent decision but if the
business does not work? It’s up to you to decide what risks to take but be
aware that access to large sums of money is not always a blessing.
Refinancing VS Payoff
One great
way to get money for bill consolidation or a new car is to refinance your home.
A refinance usually offers a much better interest rate than other types of
loans and is normally easier to obtain. Keep in mind that if you pay off your
home this will no longer be an option. Obtaining a new mortgage in an emergency
may also be more difficult than to refinance an existing mortgage and will take
considerably more time.
Improved Credit Rating
A definite
plus to paying off your mortgage is that it will have a positive effect on your
credit rating. Depending on your personal financial situation a better credit
rating may help you to obtain future loans.
Timing is Important
Even if
you are young now the day will come when it’s time to retire. If you pay your
home off when you’re in your 40’s or 50’s it will dramatically increase in
value by the time you reach retirement age. Many people opt to sell their home
at that point in their life and begin a whole new adventure! If this is
something that you have considered than eliminating your mortgage payment as
early as possible would be a great plan for you.
Of course
there are many other factors to be considered before making such an important
decision but hopefully this will help you to decide what is right for you and
your dreams.
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