Homeowners everywhere have surely considered paying off their mortgage early to get rid of those pesky monthly payments. The sooner you pay off your mortgage, the easier it should be to handle the other bills that come with being an adult. So let’s go through the pros and cons of an early payoff to see if it is right for you!
Pros of Early Mortgage Payoff
If you can manage to pay your mortgage off early you could be saving literally thousands of dollars. That is due to the reduction of your long-term interest costs. It also benefits your overall credit to show that you have less debt, and that you have the ability to manage it responsibly.
Cons of Early Mortgage Payoff
Many financial advisers are against you paying off a mortgage early since you won’t be able to take advantage of mortgage interest deductions, or the tax write-off you get from paying interest. Another disadvantage is that money that you put towards your mortgage cannot be reaccessed in an emergency. So if you don’t have enough money to both pad your savings and pay off your mortgage early, you may throw yourself into a financial hole if an emergency pops up.
How to Payoff Your Mortgage Early
After weighing the options, you may decide that paying off your mortgage early is something you are really interested in. Here are some tips on how to achieve that goal:
- Make a payment at the end of the year once you see what extra cash you have. Specifically, make the payment to the principal so it reduces the amount of interest you will pay in the future.
- Make an extra payment monthly in a separate check citing “principle” in the memo line.
- Make one-thirtieth of the payment every day to make certain no interest ever accrues.
- If you have mortgage insurance, track your loan-to-value ratio on the house and refinance the one you hit 85% LTV. This could mean hundreds of savings each month which can be applied to the principal balance rather than the bank’s insurance.
