When Should You Pay Off a Mortgage Early?

As counter-intuitive as it is, paying off a mortgage early is not always a good idea. Early payoffs rarely pays off financially for a number of reasons:

  • While you have cash in hand, you can invest it and earn interest. If you turn over all of your liquidity to your lender to payoff the loan, you will only have equity in your home instead of diversified in a number of investments.
  • Early payoffs come with fees and penalties. You may find paying to loan off on schedule is actually cheaper than paying all of these financing fees.
  • Early payoffs drop your credit score.
  • No more tax benefits because mortgage interest is tax deductible.

Because of these drawbacks, an early mortgage payoff only makes sense if you will actually save money over time with the payoff. Further, you should consider where else the funds could be allocated, and whether they will grow faster in those investments. Of course, many people will simply want to live debt free. If this goal is the priority for you, then paying off a mortgage early will help you realize the goal faster.

 

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