Pros and Cons of Paying Your Mortgage Off Quickly
Your mortgage is likely your biggest expense. Traditionally, people took a lifetime to pay down their mortgages and then, in their retirement years, they had their homes paid off and could easily live on their retirement savings. These days, you hear about people who forego the traditional 30-year mortgage and instead pay off their mortgage much more quickly. Here are some pros and cons of doing this.
Pros:
1. Paying off your mortgage quickly means fewer responsibilities. With a mortgage taken care of, you might not need to be locked into that drudgery of the nine-to-five job you don’t love
Instead you can shift toward a career that brings you more joy but perhaps less money, or take early retirement.
2. Paying off your mortgage quickly is a good idea if you’re currently making a lot of money and your job security isn’t strong. For example – if you’re an NFL football player with a large
salary but only a few years of play likely, you might want to pay that mortgage now.
3. Paying off your mortgage quickly means paying less interest, and saves you significant amounts of money in the long run.
4. This one is a pro and a con: if the value of your home changes significantly and if you pay the mortgage down early, you won’t risk owing more than the home is worth. On the other hand, you’ve paid a huge amount down and now your home isn’t worth that original amount.
Cons:
1. There are tax breaks related to mortgages. If you pay down your mortgage quickly, you’ll lose those tax breaks.
2. Having a steady payment on a mortgage helps your credit rating. If you have no mortgage and no credit card bills, it’s great to be out of debt. However, you may be surprised that if the lenders don’t see a steady history of payments, they’re less apt to lend you money if you need to borrow.
3. Paying off your mortgage quickly can mean a lot of sacrifices. It might mean fewer nights out and fewer vacations – if your belt-tightening means you’re putting yourself in a corset just to have no payments later, you might be missing out on a lot of fun. Life is short.
4. Paying your mortgage off more slowly means you have cash to invest in other areas at higher rates.
5. Today’s interest rates are low – you’re not losing all that much money to mortgage interest. It might be better to pay a mortgage off quickly when interest rates are higher.
6. If you put all of your money into your home, i.e. investing it all in real estate, you could find that you’re unable to get cash should the need arise.
Your financial situation, age, and risk personality will be the deciding factor in whether or not you choose to pay your mortgage quickly or slowly. If you don’t have an emergency fund, have other high interest loans, or haven’t saved for retirement, then paying it off quickly might not be for you.
However, if you already have an emergency fund, don’t mind a little sacrifice and are eager to be out of debt with the security and comfort of knowing your home is paid for, then paying off your mortgage quickly could be right for you.