Should you pay off your mortgage early?

Paying off your mortgage
The average American carried a mortgage balance of just under $195,000 in 2016 according to TransUnion. Currently the average rate for a 30 year fixed mortgage sits at 4.19%. Rates have been at historically low levels for the past several years. According to Nerdwallet the average APR on credit cards carrying a balance was 13.56% in 2016. With this in mind many homeowners likely would think twice about paying off their mortgage early but in some cases that might be a wise investment in the future.

4 Reasons to Pay Off Your Mortgage Early

  • You take the standard deduction - One of the strongest arguments for carrying a mortgage is the tax deduction you can take on the mortgage interest. Once the mortgage is paid off, you no longer have that deduction available. Tax deductions only reduce the amount of money you’re taxed on and in some cases the standard deduction makes more sense than itemizing. If this is the case for you paying off your mortgage will save you a lot in interest over the years.

  • You are mostly debt-free - Paying off a low-interest mortgage early doesn’t make sense if you are carrying balances on credit cards with higher interest rates. Most financial advisors agree you should always pay off debt with the highest rates first.

  • You have retirement savings - While it might be tempting to pay off your mortgage early to reduce expenses in retirement this shouldn’t be a substitute for having a well-funded 401K or IRA.

  • You will sleep better - Paying off your mortgage early has tremendous emotional benefits beyond financial considerations. For many people owning their home and having no payments gives them a tremendous sense of pride and relief. You also have equity you could borrow against if you ever need a home equity line of credit for home improvements or even travel.

There are many ways to pay off your mortgage early. Adding an extra payment every quarter allows you to pay off the debt 11 years early. Making bi-weekly payments will shave 4 years off a 30 year loan. You can also calculate the payments for a 15 year fixed and start making those payments on your 30 year loan to pay it off in half of the time. Just make sure that anytime you pay extra the amounts are applied to the principle and not pre-payment on interest. For great rates on mortgages, refinancing, or debt consolidation, let Finance Source help you find the best programs matched to your financial situation.