If you have a mortgage on your home, then paying it off early could be option for you to consider especially if the remaining debt is manageable. Conventional financial wisdom could suggest otherwise, but then there is nothing conventional about most debt anyway. Should you pay off your mortgage? Well, that ultimately becomes a personal decision one that you need to explore and decide for yourself.
Financial pundits will often insist that you should keep paying off your mortgage until the bitter end. Some even say that it is good to take out a home equity loan and pay that off well after your mortgage has been finished. The reasons? Tax deductions, pure and simple. The theory is that most people could use the tax deduction to avoid paying higher taxes. However, this can only work for most people's benefit if interest charges are high enough to make a difference. In most cases, the last five to seven years of your thirty year loan is primarily principle payment which isn't deductible. That is also one reason why some advisors suggest you cash out a portion of your home's value to create an additional deductible debt.
Beyond that, there isn't any reason why you shouldn't pay your home off early. In fact, if your number one goal in life is to own your home free and clear then an early pay off makes sense for you. Just don't get caught up with all of the advice being offered by financial experts, friends, and family members: it is a personal decision of your own choosing.
If taxes are a consideration and paying off your home will push you into a higher tax bracket, then consider the home equity loan especially if you could use the money for other expenses including:
--Paying your child's college education.
--Purchasing a new car, van, boat, or RV.
--Taking an exotic six week around the world vacation.
With these three purchases you get to deduct the expenses that you would not normally have been able to deduct. If so, it is a lifestyle choice that you have made and will live with. Just remember, you could be paying off the loan long after your child has finished college, years after your new car fell apart, and many years after you took that once-in-a-lifetime vacation. Hmmm, not a bad consideration now is it?
If you have a mortgage, sometimes it can seem like you will be paying it off forever. However, if you budget correctly and cut down on some items, you can pay your mortgage back much more quickly and own your house outright. If you want to pay back your mortgage more quickly, then some of these tips could help you to do just that:
What type of mortgage to get?
If you are looking for a mortgage that you can pay off early in the future, then the best type of mortgage to go for is a flexible mortgage. If you get a fixed mortgage then there will often be charges for paying your mortgage back early. Getting a flexible mortgage will allow you to pay less when you need to and then overpay when you have the chance. Also, with flexible mortgages the interest is calculated daily so the more money you pay back then the lower your interest payments will be.
Advantages of paying back early
The obvious advantage of paying your mortgage off early is that you will own your house outright and so have no more mortgage or housing payments to make. This will free up a large proportion of your income to spend on other things, or to save for retirement. Also, the quicker you pay back your mortgage, the less money you will actually pay. A mortgage paid over a long period of time can mean you pay almost as much in interest as the loan amount itself. Paying the mortgage back quickly will save you thousands of pounds in interest payments. In today's environment there is also no incentive to hang onto mortgage debt, as you can no longer gain tax relief on your mortgage.
Ways to pay back early
Obviously, paying back early involves overpaying on your mortgage. However, some mortgages have a minimum amount you can overpay by, which you might not be able to afford. If this is the case you should save for a number of months and then pay the amount in a large sum. It really can save you money paying back early. Paying back ?100 a month extra on a ?100,000 mortgage at 6% could save you nearly ?30,000 in interest and you will pay the mortgage back six years earlier.
When you shouldn't pay off early
Despite there being a lot of good reasons to pay your mortgage back early, there are also reasons why you shouldn't. If you get charged large fees for overpayment, then paying back early might not be the best option. Also, if you have other debts at a higher rate, pay those back first before your mortgage as these debts are costing you more. There are also personal reasons why you might want to keep your mortgage, in that you might want to spend your money now whilst you are younger and enjoy yourself. You might also want to use the extra money you have for investments, which if you can cope with the risk might yield better financial results.
Paying off is better
For most people, the quicker you can pay off your mortgage the better. Although you might have to sacrifice a few luxuries, the money you can save is worth it. If your wage increases, instead of spending more each month you should use the extra money to pay off your mortgage.
Both Adam J. Heist & Peter Kenny are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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