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Article Should You Pay Off Mortgage Early

Mortgages are the perfect solution for most of us when buying a home. In fact, most people prefer taking a mortgage, despite having the cash to purchase the house. Mortgages not only help you own a home, but also provide other benefits. The tax on mortgage interest is deductible. It also helps in boosting your credit score if you are regular with your monthly payments.

However, having to pay off a mortgage for over a decade sounds daunting and so people consider paying it off completely as soon as they amass the money.
It might seem like a good idea to get rid of the debt but before you do, you must understand when you should and when you shouldn’t retire your mortgage.

SHOULD

  • When it saves you thousands of euros in interest and reduces financial pressure, freeing up monthly cash flow.
  • If you would have sufficient funds at hand even after paying off the mortgage (for emergencies and other important expenses).
  • If you’re not going to put the money to better use by spending it on unnecessary expenses.
  • If it gives you peace of mind, knowing that you are debt free and that you own your property outright.
  • If the mortgage rate is higher than the interests on all your other loans and debts, it’s better to pay off the mortgage.

SHOULD NOT

  • When the long term return rates on the stock markets are higher than the mortgage rate and there are other savings and investment tools available that would earn you a profit.
  • When you risk leaving yourself cash-poor by depleting your liquidity or tying up all your funds
  • If inflation rates are higher than your mortgage interest rate, then you are actually coming out on top by having an active mortgage. The currency value depreciates but the payments are fixed and the house continues to appreciate in value.
  • If the tax deduction is substantial, you’ll lose the perk when you pay off the mortgage.
  • If there is a high prepayment penalty. Not all lenders penalise prepayments but it has to be checked beforehand.
Ultimately whether you should pay off your mortgage early will depend on how much money you have available, your alternatives, and other factors unique to you. But if it’s something that’s rightfully on your radar, you should seriously consider all your options. Securing a mortgage and paying it off can be a stressful and confusing process. Consult a financial advisor to guide you through all your options and choose what’s right for you.