When You Should and Shouldn’t Pay Off Your Mortgage
If you have the opportunity to pay off your mortgage with one large payment, it seems like it would make perfect sense to go ahead and do that right away. But is it always the best option financially? With mortgage rates at the lowest that they’ve ever been, there are some other options for you to choose from that could benefit you greatly. There are some times when the best decision is to simply pay off your mortgage, including the following:
If You Owe More than Your Home is Worth
When you are underwater on your mortgage, it makes perfect sense to simply pay off the remaining balance if you have the option to do so. There’s no financial benefit to keeping that loan regardless of what the mortgage rate is on it.
You are Close to Retiring
Are you planning on retiring in the next couple years? If so, it’s a great financial move to get rid of that huge mortgage payment that you are making each month. If you can do that, you can be free of it and manage your money better. Chances are that you won’t be making as much in retirement as you did when you were in the workforce so why keep that payment hanging over your head if you don’t have to?
Achieving Your Dream
Owning your own home is one of the main parts of the American Dream. If you simply want to own your home free and clear and you have the opportunity to pay it off, there’s no reason why you shouldn’t just take the plunge and do it. There is a psychological and an emotional benefit to owning your home that doesn’t compare to most other feelings. As Dave Ramsey says, the grass in your backyard simply feels different between your toes once you pay off your mortgage and you are the outright owner of your home.
Those are some times when you should pay off your mortgage early if you have the chance. But when should you hold off on paying your mortgage? Here are some examples:
You Have Too Much Debt
Are you struggling to pay your credit card bills? Do you have unpaid medical bills and other financial commitments that you are having difficulty keeping up with? If so, you should be paying on those instead of worrying about making extra payments on your mortgage. Pay down your other debts while making your mortgage payments and once you are in a better financial situation, you can start paying extra on your house each month.
You Don’t Have a Reliable Income
If things are uncertain at your job, it is a good idea to make your normal mortgage payments until things are more steady. You don’t want to put a huge sum of money into your mortgage and then lose your job because all of that money will already be spent. The lender is going to take that large sum of money that you sent in and apply it to the mortgage – not to future payments. This means you will still be responsible for the monthly payment.
These are some examples of when you should and shouldn’t pay off your mortgage early. Of course, every situation is different which is why you should consult with a trusted financial advisor to see which decision is best for you.
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