Most mortgages are written with a term of either 15 or 30 years. However, there are some homeowners who elect to pay off their mortgages early by making extra payments. While there are benefits to paying your mortgage down early and owning your home outright, it is not the right move for everyone. Here's a look at the pros and cons of this financial move.
Pro: You'll have fewer bills to worry about.
When you are done paying off your mortgage, you will have fewer bills to pay, and more money will stay in your pocket each month. For many homeowners, this gives them a sense of financial freedom and independence. You can put the money you were paying into your mortgage towards something else, like a retirement account or a special vacation. Keep in mind, however, that you will still be responsible for paying taxes on your property even after your loan is paid off.
Pro: You will pay less interest.
The sooner you pay off your mortgage, the less interest you will pay on the loan. This is essentially a risk-free investment. By setting aside more money than is due each month, you are saving yourself money in the future. You can use an online calculator tool to calculate just how much you'll save by paying your mortgage off early.
Con: You'll be missing out on the opportunity to make other investments.
If your mortgage rate is at around 3 or 4%, paying your mortgage off early may not be the best investment you can make. If you were to invest the extra money elsewhere instead of putting it towards your mortgage, and it earns even 5 or 6% interest, you'll make more money in the long run. Keep in mind, however, that you do actually have to plan on investing the money for this to ring true. If you'd be spending the money on luxurious clothing and vacations rather than putting it towards your mortgage, then it's most certainly a better investment to put it towards the mortgage!
Con: Your money will be tied up in equity.
Once you pay money into your mortgage, it's essentially inaccessible -- unless you were to take out a home equity loan. If you were to keep the money in a mutual fund account or similar investment instead, you could access it in case of an emergency. So, it may not be a good idea to invest extra money into your mortgage if you don't yet have a healthy emergency fund of cash set aside.
Share24 April 2017
When I began my first business selling sports equipment locally, I knew the sports-world well, and I knew how to run a business. One thing I did not know a lot about was the financial world. I had never applied for a loan in my life other than when I financed my car with the dealership in-house financing. My first application at a large bank was denied. I began looking into my other options, and I found that there were more lenders for new businesses than I realized. I applied at local credit unions, local banks, and other business lending services. I was able to secure more funding than I even expected, and my credit is just average. I created this blog to help other new business owners realize that there is funding out there. You just have to find it and apply! Don't give up on your dream.