Mortgages are the most common type of personal debt in the United States. For what ? Because when you take out a home loan, depending on the type of loan, you are usually financing 80% of the housing price. But the total cost of a mortgage is not just the actual price of a home, it also includes the interest you pay on the loan itself.
For example, if you take out a 30-year fixed mortgage, you can plan to send a payment (covering both principal, interest and home insurance) to your lender for the next three decades – unless you decide to pay off your mortgage early.
Getting out of your mortgage – if you can afford it – can provide benefits that can have a positive impact on your finances, as well as your quality of life, especially in retirement.
Here are four reasons to consider whether paying off your mortgage early is good for your long-term financial outlook.
Key points to remember
- Paying off your mortgage early could free up cash for travel, retirement, or other long-term projects.
- Not having a mortgage can save you from losing your home if you run into financial difficulties.
- Interest on a home loan can reach tens of thousands of dollars over the life of the mortgage.
1. Tackle other debts
One of the main benefits of paying off a mortgage is having greater long-term financial security. Without the burden of a mortgage to pay each month, you may find yourself with extra wiggle room in your budget.
If you were having trouble paying your bills before your mortgage was paid off, you can redistribute the money you would have paid on your mortgage to pay for high utility bills, credit card balances, college loans and other types of debt.
2. Paying off a mortgage reduces interest costs
The high interest cost of the loan is a huge financial handicap for homeowners applying for a mortgage. The longer the mortgage, the higher the interest.
By paying off your mortgage early, you can realize significant savings due to the added cost of interest, especially if your home loan had a high interest rate when you took out your mortgage.
3. Protection in unstable housing markets
A major concern for many homeowners, especially if they remember the Great Recession, is the impact an unstable real estate market can have on homeowners. Being able to meet mortgage payments during a major financial crisis is a real concern for many homeowners.
For example, if you suddenly need money and want to use the equity in your home, this can be difficult to do if your home’s value drops due to market instability.
But if you’ve paid off your mortgage, at least that monthly financial burden is removed and you can wait for the market value of your home to improve.
Some financial experts warn that you shouldn’t sacrifice your retirement to pay off your mortgage. If you’re retired, it can be helpful to weigh the pros and cons of paying off a mortgage versus increasing your retirement accounts.
4. Financial freedom to pursue other projects
A nice benefit of paying off your mortgage, assuming you have no other debts, is that it can give you the financial freedom to pursue other businesses.
Whether you’ve always dreamed of living in the tropics, traveling the world, or owning your own business, having extra money in your bank account each month will allow you to pursue other economic opportunities.
Paying off a mortgage is a dream for many homeowners. If this goal is within reach for you and your family, it might be a good idea to satisfy your mortgage balance.
Not only does it free up extra money each month, but it provides extra financial security in times of housing crisis, allows you to save more, and may even allow you to pursue your dreams that need extra financial support. .
