Paying off your mortgage early might sound like a great idea, but there are many different factors to consider before pulling the trigger. You must review your opportunity costs to ensure you aren’t infringing on other financial goals or hampering your overall tax strategy.
By paying off your mortgage early, you will save additional interest you would incur with your regular monthly payments. This can be a significant savings over the long term, but applying all your cash to your mortgage may mean fewer opportunities to invest your money elsewhere. The lower your interest rate, the less you could benefit through early retirement of debt.
Just like receiving a mortgage, deciding whether or not to pay it off early is a huge decision that should be thoroughly discussed. Take a look at some other considerations:
Taxes: For a lot of people, the ability to deduct mortgage interest from their taxes is very important to their overall tax strategy. You must consider whether you will be able to itemize deductions without that mortgage interest.
Investing: You must also realistically consider whether you will be likely to invest the cash that would have gone toward your mortgage payments or spend it elsewhere. You can set up direct deposits to “set it and forget it,” perhaps by increasing your monthly 401 (k) contribution.
Needs: Besides having extra cash to invest, you could have other goals on your radar. You must look at the big picture - including student loans and credit card debt - to decide whether you have enough for emergency situations.
Life Stage: A huge factor in considering whether you should pay off your mortgage is your life stage, risk tolerance and time. If you are coming up on retirement, it is possible you have a more conservative asset allocation, and investing in the market could be an unnecessary risk. Also, being debt-free may also become important later down the road.
Set realistic expectations for yourself when weighing the pros and cons of paying off your mortgage. Before committing to a strategy, talk to a financial advisor to see what you can do to put you on the right path to achieving your goals. Call one of our mortgage advisors to learn more about your options at 1-844-77-vLoan.
If you are currently house hunting for your own dream home or looking to refinance, get a free rate quote to estimate your monthly payments and connect with one of our dedicated mortgage advisors. Don’t do mortgages like your parents did. Do it digitally, with vLoan. Follow @vLoanMortgage on Facebook, Twitter or Instagram to keep up to date with our monthly campaign #vLoanLove.