Determine whether you should pay off your mortgage ahead of schedule.
Some people enjoy the peace of mind that comes with being debt-free. While you may relish in the opportunity to become debt-free and pay off your mortgage early, you should stop and consider all the pros and cons. If you don’t have enough money to do both, is it smarter to pay off your mortgage early or invest your money in the financial markets? For most working people, these are choices that need to be thoroughly considered.
Reasons to Pay Off Your Mortgage Early
- Less debt increases your monthly cash flow
- By eliminating interest payments, you could gain an equivalent risk-free return. That 4 percent you used to pay to the lender is now 4 percent back in your pocket.
- Your living overhead is lower, so now you’ll be able to tap fewer of your retirement assets to meet monthly expenses.
- You will lose the mortgage interest deduction, but it is only worth the amount that you take over and above the standard deduction, which every taxpayer gets.
- Owning your home could give you security, especially if you lose your job or mortgage rates rise.
Reasons to Keep the Mortgage
- Investing the money (rather than paying off your mortgage) may give you a higher return, especially in tax-free accounts.
- You keep the mortgage interest deduction, which slightly reduces the effective interest rate you pay.
- Paying off the mortgage puts value in an illiquid asset meaning you can’t withdraw it from an account or spend it like cash.
- A homeowner who pays off their mortgage early isn’t desirable to a bank. Mortgage lenders may charge a penalty for paying off a mortgage early because they will be missing out on years of interest payments.
- Having a mortgage helps to build your credit profile, too.
Whatever you decide to do, make sure you have the right insurance coverage to address all your needs. To find the best policy for you, contact the professionals at Kurt Rolf Insurance Agency. Our dedicated team serves all your insurance needs in Minnesota, Wisconsin, Florida, South Dakota, and Arizona.