Should I Pay My Mortgage Early? Or Should I Not?

It is important to decide if you want to pay mortgage early or not. The decision is based on various parameters and it can be complicated to reach a conclusion many times. For some people, the real question is if they should set aside some money every month to pay their mortgage early. For others, it is about making a total payment all at once. There are many challenges when it comes to saving up money each month just to pay off your mortgage as now, you have to prioritize things. Should you save money for mortgage or use it for your child’s education? Should you pay your credit card bill first (which charges a much higher interest rate) or worry about your mortgage which grows at a slow and fixed interest rate? Prioritizing is necessary and complex. Paying your mortgage off should make your feel financially secure and emotionally stronger. However, when you give up on certain needs and make sacrifices to pay your mortgage, the effect pretty much dies. So, should you really be paying your mortgage off as early as you can? Or should you wait for a while before you do so? This post is going to discuss this in more detail so you can have a much better and clearer idea of what action you should take and why.

First, here is a list of reasons why you should not be paying off mortgage early.

  • You need money for other debts
    • Mortgages should be the last debt you pay off because of several reasons.
    • Car loans come with much higher interest rates which can accumulate over time and give you a huge bill.
    • Interest on car loans is also not tax deductible which means it makes more sense to prioritize car loans.
    • Education loans are also available at higher interest rates than mortgage which is why paying it off earlier makes more sense.
    • Credit card debts should be paid back earlier as well because of their high interest rates.
  • You want to save a fraction of your gross income
    • It is necessary that you save a significant part of your income for your future.
    • A rule of thumb would be to save 20 per cent of your gross income every month before you pay the extra money towards mortgage.
    • These savings will help you during your retirement and will also be saved to taxable accounts.
  • You want to save money for big purchases
    • It is possible that you want to save your money for a bigger purchase such as your child’s education, purchasing a car, renovation of your home, a wedding, take your family on a vacation, and many others.
    • These things are important for the quality of our lives and one should not sacrifice on these just for paying off a mortgage. Additionally, if you still go ahead with the big purchases after spending money towards mortgage, you will only find yourself in more debt.
  • You don’t have a 12 month emergency fund
    • It is recommended that everyone should have a minimal amount of money in their taxable accounts which is good enough to cover expenses for a year before they go about with spending money money towards mortgage.
    • A 12 month emergency fund may seem like an unrealistic luxury but in reality, it will keep you steady, safe, and stable.
    • It is always a good idea to keep a 12 month emergency fund before you make the final decision to pay off the mortgage early as anyone would want to secure themselves while they pay off their mortgage.
  • It will eat up all your money
    • Another important consideration before you decide to pay off your mortgage early is liquidity.
    • What you need to understand is that early mortgage payment requires a lot of money and for the most part, it may actually be a reasonable plan. However, if the plan is going to eat up all your money, you shouldn’t pay off the mortgage.
    • It is not a wise decision to put yourself in a risky position.
  • You want to invest your extra money in other ways
    • You may have a decent amount of extra money left and you might be thinking about paying off your mortgage but there is another possibility – investment that can lead to a lot of profit.
    • To decide which way to go can be a complicated process since both ways seem good. The decision should be based on the interest rate of your mortgage.
    • Most mortgages are available at low interest rates which means that if you do decide to invest the extra money in another venture, you will not be increasing your mortgage by much.
    • If your investment is good enough and diversified, you can actually start making more money soon enough which will contribute towards the payment of your mortgage.

Now, there might be reasons where paying off mortgage early will actually be productive for you. It makes sense to pay it off early in certain circumstances. For example, in a case where you have access to a lot of money because of the death of a close relative or spouse (insurance money, annuity or inheritance money), you can use it to pay off the mortgage. It will give you a feeling of security and you will be able to live your life better and without any stress of having to pay a certain amount each month. However, if you have other expenses that make your life better, you should not concentrate on mortgage but on managing all your expenses in a smart and fulfilling manner.