Now that I have my emergency savings built up, and I’m putting a good chunk of my income towards retirement, I’ve been debating on whether I should start putting extra money into paying off my mortgage. Buying my house was really one of the most exciting days of my life. The first time you become a homeowner is a special thing. The mortgage payment, however, can be somewhat of an eye-opening experience. Usually it will be your largest monthly bill, and probably the one with the longest term. So does it pay to pay it off early? There are plenty of differing opinions on whether prepaying your mortgage is a good idea, and explore a little of both sides.
There are many benefits to paying off your mortgage early. One of the big reasons experts say owning a home is a key part in solidifying your finances is that it forces you to save money. By having a necessity (a roof over you head) that doubles as an investment, you get the best of both worlds. You have to make your payment every month, but that money is going to paying off a long-term asset that you will eventually have ownership of. In that sense, paying off your mortgage early can be a big plus. Not only do you get yourself closer to owning your home, but you get closer to eliminating your biggest monthly bill. That means you’ll have a home plus a lot more extra money per month to put away or invest into other things. Plus, with the volatility of the stock market some say that putting your extra money into something that you want to pay off anyway might be a safer investment.
There are some disadvantages to paying off your house early too. Right now the housing market isn’t great, so some would contend that you’re possibly putting money into a somewhat risky investment. You have to pay your mortgage regardless, but by putting extra money into paying if off every month, you’re taking money that you could be investing elsewhere and putting it into a weak real estate market. Another disadvantage of paying off your mortgage early is that you tie up a lot of your money into an invest that is not very liquid. Recouping your money invested in a house takes more effort and time than other mediums. Sure, you could get a home equity line of credit, but then you’re paying interest on borrowing money that you’ve already invested. Plus, if you were able to get a great mortgage interest rate, why would you want to pay it off that much sooner? The key to being smart with money is to only pay off the loan debts that have interest rates higher than what you could make by investing that money.
In the end, the real answer of whether you should pay off your mortgage is “it depends.” If you got a great interest rate on your mortgage and you’ve still got 20+ years on your mortgage, it doesn’t make much sense to put more money towards your house. Use that money to invest into other things (retirement, college, businesses) that can give you a higher return than the interest you’re paying on your house. On the other hand, if you’re closer to paying off the mortgage on your home that you plan to spend the rest of your life in, maybe it might be a good idea to get it done a little sooner. It will all depend on what your goals are and where you are in the process. Owning a home a great experience (most of the time), and a lot of people would love to not have to pay their mortgage every month. Make sure you analyze your situation and do what makes the most sense for you.
