Paying off your mortgage early can be a wise financial move. You’ll have more cash to play with each month once you’re no longer making payments, and you’ll save money in interest.
Making extra mortgage payments isn’t for everyone, though. You may be better off focusing on other debt or investing the money instead. Here are the pros and cons to paying off your mortgage early.
If you’re paying off your mortgage early so you can have more monthly cashflow, you should have an idea of how you’ll use that extra money. If you want to cut out your $900 mortgage payment and invest $900 per month in its place, that could be a good use of the money.
Ultimately, it’s up to you how to spend the extra cash. But if you can’t think of what you want to do with the money, or if you’d spend it on frivolous purchases, paying off your mortgage early might not be the best financial move.
The answer to this question will be different for everyone.
If you know you want to stay in this house during retirement, paying it off now so you don’t have to make monthly payments in retirement might be the right move.
But if you’re, say, 10 years away from retirement and haven’t started investing yet, investing will be a better use of the money than paying off the mortgage early.
The general rule of thumb is that you should focus on paying off higher-interest debt before lower-interest debt. You may be paying a higher rate on a credit card or private student loan than on your mortgage, so you’d benefit more by paying those off early.
Don’t pay so much toward your higher-interest debt that you risk defaulting on mortgage payments, though. Yes, credit cards can be expensive, and the issuer may take legal action if you default on card payments. But defaulting on mortgage payments can be an even bigger risk, because you could lose your home.
There’s no clear right or wrong answer about whether or not you should pay off your mortgage early. It depends on your situation and your personal goals.
Use our free mortgage calculator to see how paying off your mortgage early could affect your finances. Plug in your numbers, then click on “More details” for information about paying extra each month.
By putting a few hundred dollars toward your mortgage per month, you could own your home in full years sooner. But even if you don’t have that much extra money each month, you may decide to put just $50 or $100 toward your payments.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer. Read our editorial standards.
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