The Pros and Cons of Early Mortgage Payoff


Under the right circumstances, homeowners benefit from paying off their mortgages early. However, there are also times when it doesn’t make sense to pay off your mortgage before the end of the term. Let’s take a closer look at the advantages and disadvantages.

Advantages of Paying Off Your Mortgage Early

Homeowners can borrow money based on the equity in their home. Ask your financial institution about a home equity line of credit, or HELOC, you can use for improvements or emergencies.

HELOC interest rates are still low, so using the funds to make repairs might make more sense than taking out another loan. Here is some other advantage to paying off your mortgage early:

  • Paying off your mortgage early saves you a lot of money over time. Even if you just make a few extra payments a year, the total interest you end up paying is much less than if you continue paying for 30 years.

It’s true that your tax deductions are reduced when you accelerate your mortgage payments. However, you’d still be ahead financially since you save only a small portion of every dollar of mortgage interest.

  • Paying off your mortgage before you retire means you can live more cheaply. This puts you in a better position to support yourself than people who rent or continue making mortgage payments.

Drawbacks to Paying Your Home Loan Off Early

Financial experts agree that you should maintain some liquid assets. These assets can be converted to cash quickly and include marketable securities, stocks, treasury bonds, mutual funds and regular bonds.

Real estate is a non-liquid asset because it may take weeks or months to sell a property. Here are some of the disadvantages to paying off your mortgage early:

  • If you’re in the highest tax bracket with an income of hundreds of thousand dollars, savings from the mortgage-interest deduction might outweigh the advantages of making extra payments.
  • Making extra payments ties up cash you could use for investments or financial emergencies.
  • If you could net a higher return investing the money than the mortgage interest rate, making extra payments isn’t financially desirable.
  • Some lenders charge a prepayment penalty, so be sure to check with your bank or financial institution so that you can factor this into your decision.

Mortgage PITI Calculator

Get the tools you need to make an informed decision., such as mortgage PITI calculators that help you decide if you should pay off your loan. You might also want to consider consulting a financial advisor about your best investment strategies.

The most important thing is for you to define your financial goals and to allocate your budget wisely to achieve them. Financial planning is often more emotional than logical.

When you feel good about where you put your money, you’re happy. This perception may not line up with the reality of how well your money is working for you.