Homeowners often pay extra on their monthly mortgage payment in hopes of dropping the principal as much as possible and shaving a few years off of the overall loan. While this is certainly good advice and will help decrease the amount of interest the homeowner pays over the term of the loan, it is not always the best idea financially. Here are a few reasons why homeowners may want to avoid paying off their mortgage early:
- It is a low-interest debt. A mortgage is likely to be one of a consumer's loans with the lowest interest rates. This is especially true now when rates are at the lowest they have been in years. Because of this, homeowners may want to focus on paying down higher interest lines of credit, such as credit cards.
- Investing may provide a better return. While paying off the mortgage does free up a good portion of a homeowner's income, they may be able to invest their additional mortgage payment and get a better return.
- Homeowners can deduct the mortgage interest from their taxes. This can help lower the amount they have to pay to the IRS at the end of the year.
- Some homeowners use their retirement or emergency savings to pay off their mortgage. While it may seem like a good idea to be free of that monthly payment, this can leave homeowners scrambling if they are hit by any unexpected expenses after draining their savings.
Before choosing to increase your monthly repayments, consider the above points and assess whether paying off your mortgage early really is the best decision in your overall financial situation.