Details on Paying Mortgages Off Early, Part 1

For many homeowners, the thought of paying off a mortgage loan early can be a tantalizing one. There are many home loan situations where paying the balance off early will bring you significant savings in total interest paid over the life of the loan, plus other potential benefits.

At Altius Mortgage and our partners at Mortgage Ogden, we’re here to help with all related areas, including a few refinancing options that might offer this result. But we’re also here to remind you that, in some situations, paying early might not make the most financial sense for you (there might be other cases where loan contracts actually prohibit it, but we’ll leave that for another time). In this two-part blog, we’ll first examine whether paying down your mortgage early is the prudent move based on your finances, plus then dig into some non-refinancing tactics at your disposal.

Other Uses for Money?

While it will definitely feel good to see a zero balance on your mortgage, there are several situations where using your available funds for this isn’t actually the optimal route. One common example here is if you have other debts, such as a car or student loan, that comes with a higher interest rate than your mortgage – you should always pay down the highest-rate interest loans first as long as you’re avoiding penalties for all your debts.

In addition, however, there might be several other related circumstances. Mortgages are very cheap on the current market, meaning many forms of investment might actually be better for your long-term financial health – you could be better served building up a savings base through these with your additional money rather than putting every dollar into the mortgage.

Finally, there are several common scenarios where you can receive tax breaks for paying mortgage interest. If you’ve paid the mortgage off already, however, these won’t apply.

Money “Trapped” in Your Home

Another factor to consider is the state of real estate as an asset – while it’s worth plenty in most cases, it’s not actually a liquid form of money. This means that if you’re short on cash because you’ve put all of it into paying down your mortgage, you could struggle in a few important areas. Even if you’re making some headway into paying down a mortgage early, we recommend keeping emergency funds available as well.

When Paying Early Makes Sense

Here are a few good situations where you can benefit from paying down a mortgage earlier than planned:

• You have an emergency fund aside for any such expenses, plus money saved for home maintenance and future planning.
• You have no other debts with higher interest rates.
• You have no additional investment opportunities that could yield a better return.
• You’re nearing retirement age and may be living on a fixed income soon, but are contributing to your retirement accounts.
• You have money saved for insurance and taxes, which will remain even after you’ve paid off a mortgage in full.

For more on whether it’s prudent to pay your mortgage down early, or to learn about any of our home loan services, speak to the staff at Altius Mortgage today.