Being mortgage free would be music to any homeowners ears, but is it really worth it to pay off your mortgage loan early? The answer is yes and no.
Paying off your mortgage faster is a benefit in many ways:
- When the loan is paid off, that entire monthly payment is now cash in your pocket.
- Not having a monthly mortgage payment frees up that money for investing, saving, paying off other loans, or even taking that trip you’ve dreamed about for years.
- You will have paid less interest than if you carried a 30 year loan.
Cons of paying off your mortgage early:
- Some lenders charge a prepayment penalty – make sure you check the terms of your loan!
- It could be smarter to use that money to instead start a college fund or contribute to your retirement accounts. Source: Yahoo!Homes
In addition to ensuring that you’re financially set after retirement, making contributions to retirement plans – like IRAs and 401(k)s – instead of paying off a mortgage early, is smart because the interest they earn is not taxed until you retire, says Walsh. What’s more, borrowers are able to deduct mortgage interest from their income, so when they put extra cash into an IRA or 401(k), it’s a huge tax deduction all around.
Plus, if your company has a matching program, when you contribute to your 401(k), you’re essentially getting free money toward your retirement. A matching program, according to the U.S. Department of Labor, is when employees contribute a predetermined portion of earnings to their 401(k), and their employer matches either all or part of that contribution. When you add up the amount your company matches over the years – the long-term benefits of adding money to your retirement accounts could be more beneficial than paying off your mortgage early, according to Hollensteiner.
- There could be tax implications. I recommend talking with your accountant before making the decision to pay your mortgage off early.
While there are both benefits and cons to paying off early, your financial situation will ultimately determine whether it is a smart choice or not. If you are nearing retirement age, it could be more beneficial for you.
My name is June Seebohm and I am an experienced Realtor serving the Hilton Head Island and Bluffton, SC area’s. I am happy to help you in any way that I can in regards to learning about our beautiful area, as well as any and all of your real estate needs or questions! Please don’t hesitate to contact me via email: firstname.lastname@example.org or call 843-290-2929. I also have a Facebook Page and would love to connect with you there. Whether you are a vacationer, resident, buyer, seller, or current home owner/renter interested in the Hilton Head area, this is a blog you’ll want to follow!