We think it’s natural for people to feel bothered when they have existing debt. That feeling is magnified several times when we talk about mortgages because imagine not having the security of owning your house even after several years of paying.
So it is only natural to have an urge to pay off your mortgage (or any debt, for that matter) as soon as you can. However, emotions aside, is there a real benefit or advantage when you pay off your mortgage early?
Today’s article will discuss that. So, stay tuned.
Before we go to the heart of the matter, let’s answer this question first -: “are you allowed to pay off your mortgage early?” The safe answer is to review your contract and reach out to your mortgage lender. They allow it usually and especially if contracts include a pre-termination (as in paying it off earlier than the agreed term) fee which could reach 2% of the remaining mortgage balance. So, that’s another thing to consider when trying to pay off your mortgage.
Now, let’s discuss the benefits of paying off your mortgage early.
The immediate benefit in paying off your mortgage is it eliminates your monthly mortgage payment, thus freeing up your cash flow. You can use the extra cash as part of your expenses or you can even invest it somewhere else.
The other benefit of paying off your mortgage early is that it lets you save money on interest. We’re talking about thousands of dollars, especially if you paid it off way earlier than the originally agreed term. Again, these extra savings can be diverted to other expenses or invested somewhere else that can give you additional passive income.
Arguably the main and most important benefit to paying off your mortgage early is that it grants peace of mind knowing you own your home outright. This is something priceless. Coming home each day knowing that the title to the house you’re living in belongs to you and not encumbered somewhere else, gives you a certain sense of security and comfort. If you look at it on a deeper level, this also contributes to a person’s self-esteem and self-confidence. A “full-pledged homeowner” — now, we certainly like the sound of that.
Since you already own your house, you can tap the equity in your home if you need money later. This is perfect for those who are young and may want to venture into business or other endeavors, which require a significant sum of money upfront. However, a word of advice; tread lightly, so you do not squander your home.
When considering whether to pay off your mortgage early, it’s important to think about what works best for your situation and is most likely to help you attain your short and long-term financial goals. In financial planning, the numbers certainly play a huge part, but sometimes, we just want to feel good about where our money is going — no matter what the spreadsheet says.