Is paying off your mortgage early a good move?

You are probably under the idea that paying off your mortgage early is always the best option, but this isn’t necessarily true. 

A mortgage is likely to be the largest debt you will have in your lifetime and thinking about paying it off is attractive, but there are many situations in which this is just not the best option.

Eliminating debt is usually a good idea, especially if this means that your house finally belongs to you and not the bank, but consider these situations to determine if this is the right move for you.

1-    Prepayment penalty

Many mortgages penalize the homeowner for paying off early. This is usually valid for the first five years, because the bank always prefers to keep a loan for its entire term. Take a good look at your mortgage contract to see if this penalty applies to yours.

2-    The return on your investments is higher than the interest on your mortgage

If your return is at 10% and your mortgage has an interest rate that is at 5%, your best move is to invest that extra interest you are making. With this strategy, you are 5% ahead, so paying off your mortgage just now might not be the best option. 

3-    Tax advantages are good

Most of the mortgage payment consists of interest and interest is tax-deductible. You need to do your math and determine whether tax break is worth carrying debt or not.

Consider your overall tax situation and how much it will change without a mortgage payment. If the extra taxes you’ll have to pay are higher than the mortgage payment, then paying off early might not be a good idea.

4-    You haven’t saved enough for retirement

If you have extra cash to pay off your mortgage but you have not saved enough for retirement, it might be smarter to save it. You need to keep a balance between your financial situation today and your future financial situation, and not paying enough attention to your retirement funds is a common mistake you’d want to avoid. 

Every situation is unique, so you need to carefully do your own math and determine which is the right move for you.  

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