Is Paying Off Your Mortgage Early a Good Idea?

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Filed under: Financial Planning

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Paying off your mortgage is something most homeowners constantly think about. But is paying off your mortgage early a good idea? According to a recent article by Kristen McFarland in U.S News & World Report, there are some things to seriously consider before making this decision.

• Opportunity Cost

If you pay off your mortgage early, you will save on the additional interest expense that would have been incurred in your regular payments. And, these savings can definitely be significant. However, if you direct excess cash towards paying down your mortgage, those funds will no longer be available for any investment.

• Taxes

For a lot of homeowners, having the ability to deduct mortgage interest is an important part of tax strategy. You need to consider whether you will still be able to itemize deductions without mortgage interest.

• Investing

You need to seriously think about whether you will invest the cash that would have been directed towards paying down your mortgage or spend it.

• Other needs

Ask yourself if there are any other more pressing goals in your future. You should look at your entire financial situation, including student loans, credit card debt, and whether you have adequate emergency reserves.

• Life stage

Your decision to pay down your mortgage will vary depending on your life stage, risk tolerance, and time horizon. If you are close to retirement, you may have a more conservative asset allocation. In addition, becoming debt-free may become more important later in life.

• Time horizon

If you are planning on staying in your home for the long-term it makes more sense to consider overpaying your mortgage than if you don’t think you will ever pay off your home.

According to McFarland, you need to set realistic expectations and ensure the proper plan is in place to achieve your objectives. It is important to discuss your decision with your financial advisor and tax profession.

If you ever have mortgage related questions, feel free to give me a call and we can discuss whatever is on your mind.

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