Should I Pay Off My Mortgage Early?

Should I Pay Off My Mortgage Early?

pay off mortgage early


Are you one of those go-getters who’s on top of your finances and looking to pay off your mortgage before you retire? It’s great that you’re thinking about using your extra income to pay off your debt, but there are a few things to consider before making extra payments toward your home loan principal.

Getting rid of your housing debt isn’t such a straightforward proposition. In fact, there can be some advantages to continuing monthly payments on your mortgage and funneling your extra money into other savings opportunities. Here’s how to decide whether you should pay off your mortgage early or put that money to work elsewhere.

The Advantages of Paying Off Your Mortgage Early

There can be a number of advantages to paying off your mortgage before your loan term ends. A few of them include:

  • Eliminating what’s often your biggest monthly expense
  • Gaining a fully paid-off asset
  • Peace of mind if you get laid off or can’t work for a period of time

You’ll pay less interest, too, if you do an early payoff, a savings that can run into the tens of thousands of dollars or more, depending how far into your loan term you are. There’s also emotional satisfaction that comes from knowing you’ve worked hard to own something that, at one point in your early life, may have seemed out of reach.

The Disadvantages of Paying Off Your Mortgage Early

That said, there could be disadvantages to paying off your home before your mortgage term is up. Since every financial institution is different, it’s important to call your lender or financial advisor before paying off your mortgage early.

  1. Neglecting Your Retirement Fund or Other Debts

The first, and most obvious, disadvantage is that you’re not able to utilize any money you put into paying off your home early elsewhere.

For example, paying off your mortgage early means you may be allocating funds toward paying off your home that you could be saving for retirement. The interest you would gain through putting the money toward retirement could outweigh the interest you’re paying on your mortgage.

If you have a lower interest rate on your mortgage than other debts, you may be better off using extra money to pay down another debt with a higher interest rate.

Before pushing your additional income to paying off your mortgage early, talk with a financial advisor to see if placing your money elsewhere would be more beneficial in the long run.

  1. You May Have to Pay an Early Payoff Penalty

Another factor to consider is whether your mortgage includes a penalty for early pay off and confirm that you understand what that penalty is. If you do have a penalty, weigh that expense against the advantages of paying off the loan now.

You may still find it’s worth it to pay off the mortgage, since you’ll pay less interest over time. It’s important, however, to factor that penalty into your decision.

Should I Pay Off My Mortgage Before I Retire?

For those nearing retirement age, the calculus for deciding whether to pay off your mortgage may be a little different. You’ll soon be living on a fixed income, and you may desire the security that comes with owning your home outright, not to mention wanting to drop a significant monthly expense.

However, paying off your mortgage before retirement may not necessarily be the most fiscally advantageous move, depending how far you are from that day. Are you 10 or more years out? Then you may be better off maximizing the amount you put into your retirement savings, where it can earn money for you until you stop working.

If you decide it makes sense to put that money to work for you, you could simply contact us about our IRA options. For more ideas on maximizing that money, you may want to talk with a financial advisor. There are many to choose from, including our friends at PSECU Financial Services (PFS), available through CUSO Financial Services, L.P.*

On the other hand, if you’re just a few years away from retirement and have substantial retirement savings, paying off your mortgage may make sense, especially if you have a longer loan term. You may save a great deal on interest and gain peace of mind of knowing your home truly belongs to you.

Whether through paying off your mortgage early and investing or being disciplined in your day-to-day spending, you can make the most of the money you earn. To help you, we offer the blog and our WalletWorks page for money-saving tips and tricks.

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. PSECU has contracted with CFS to make non-deposit investment products and services available to credit union members.

The content provided in this publication is for informational purposes only. Nothing stated is to be construed as financial or legal advice. Some products not offered by PSECU. PSECU does not endorse any third parties, including, but not limited to, referenced individuals, companies, organizations, products, blogs, or websites. PSECU does not warrant any advice provided by third parties. PSECU does not guarantee the accuracy or completeness of the information provided by third parties. PSECU recommends that you seek the advice of a qualified financial, tax, legal, or other professional if you have questions.