For most, people paying off their mortgage as soon as possible is a priority because it means freedom from the monthly payments as fast as possible. Plus, it means having full equity in your home and the bank does not own any of the financing. For these reasons and many more, it is often a good idea to pay off your mortgage early.
However, this is contingent on some critical points that should be considered before everything else. Above all, before starting to make extra payments or pay off a lump sum using a sudden windfall or inheritance, the decision to pay off your mortgage early should always make financial sense for yourself and your family.
What is the Opportunity Cost When Paying Off Your Mortgage Early?
One of the considerations here is to remember that there is an opportunity cost to paying off your mortgage early. While you will save on interest paid on your mortgage by paying it off early, the money that you use to pay off your mortgage early could be used elsewhere to generate more income. Investments in stocks and bonds could give you the returns that you want to get you to retirement or create another source of passive income.
Even with this in mind, you still might want to pay off your mortgage early because it can bring some peace of mind to your daily life and your monthly budget. Paying off your mortgage early means not having that large debt hanging over your head. It all comes down to deciding how important it is for you to pay off your debt.
Is it Possible to Pay Off Your Mortgage Early?
In any case, it is always possible to pay off your mortgage early. One thing to consider, however, is that your mortgage lender or servicer may have a prepayment penalty for paying off your mortgage in advance of the payment schedule. Additionally, while some lenders will not charge a prepayment penalty, they may have very specific parameters for how you are able to pay off your mortgage early. No matter what the case, you should check with your lender first.
Weighing Your Options
You’ve already asked yourself if you want to pay off your mortgage early, and perhaps it is an attractive prospect. The feeling of owning your house completely and not having the monthly mortgage payment come around every 30 or so days could be great.
While imagining how it might be with your mortgage paid off early, you should also consider what you would do without paying your mortgage off early. Think of the opportunity costs and how you might use that money if it wasn’t tied up in your home.
We Can Help
If you have trouble saving and are sometimes wondering whether you will be able to pay your mortgage for the month, paying off your mortgage early is a great option. If you come into the right amount of money or can budget out a faster payment plan, then this can be a kind of forced savings because you have a bigger obligation to keep the money for the mortgage and put the equity into your home.
Paying off your mortgage early and taking full equity of the home means that the money is locked in one place and you can’t spend it unless you sell your home. Buying a home can feel overwhelming, but we know what to do to get you the loan you need and connect you with real estate professionals you can trust. If you’d like to learn more, reach out to us at (562) 924-7884.