Being mortgage-free sounds wonderful. But as with most financial choices, there are pros and cons. Before using an inheritance, a raise or savings to pay off your mortgage early, here are some things to consider:
- Immediate savings. Paying off your mortgage eliminates monthly payments and saves you thousands of dollars in interest.
- Peace of mind. If you’re the kind of person who lies awake at night worrying about
finances, imagine the peace of mind that comes with being mortgage-free! It may not always be the most cost-effective choice, but you’ll find life a lot less stressful.
- Enforced savings. Some of us have difficulty saving money unless we’re forced to. Paying off your mortgage makes your money less accessible so you’re more likely to save it and less likely to blow it on a whim.
- Borrowing potential. Even if you use all your savings to pay off your mortgage, you can still get affordable access to the money you need with a home equity line of credit (HELOC).
- Investment potential. If you put your money in the stock market instead of paying down your mortgage, on average you’d end up ahead financially. But as recent events demonstrate, stocks sometimes lose money. On the other hand, you could invest your money in a revenue property so you earn rental income and capital gains. Again, on average you’d end up financially ahead—except during real estate downturns.
- Liquidity. Paying off your mortgage may take up all your savings, leaving you with very little liquidity (cash to spend). Everyone needs cash on hand for emergencies, house and car repairs, etc.
- Investment risk. Putting all your savings into your mortgage can be risky if real estate markets drop. If you need to sell during a downturn, you may get less money out of your home than you put in.
If you’re trying to decide whether to pay off your mortgage early, call us today for a free analysis of your financial situation!