The dilemma of whether to pay off the mortgage early or not is something we all have at some point in our life. But when you put things in perspective, it’s not as tough as it sounds. You certainly enjoy a lot of benefits in paying off your mortgage early. Given here are the reasons why you should go ahead and make the decision.
The interest rate
This is easily the most obvious benefit of all. If you look at your amortization schedule, a large portion of the amount you pay in the first few years would go to the interest. For example, if you had a loan of $100,000 and paid $600 every month, more than $400 would go only for the interest in the first few years. In other words, a loan which could be finished off in just under 14 years is stretched up to 30 years, with tens of thousands going to the interest alone. Prepaying your mortgage allows you to save this amount and cut down your loss.
Makes you feel secure
Let’s face it; 30 years is a long period to be in debt. When you prepay your mortgage, you feel relieved as you are debt free. This gives you more control over your life, as you can plan your income the way you want. The odd feeling of owing money goes off, and it makes you feel secure as you have a debt free asset that you can bank on.
Retirement solutions
Paying off your mortgage early helps you plan your post-retirement life by investing in plans that offer steady returns. It also helps you meet your living expenses. Moreover, a debt-free property is what you would like to leave behind for your heirs.
Cuts down the costs
In most of the middle-class homes, paying monthly mortgage payment is a huge liability. Once it’s paid off, your cost of living could be brought down which helps you go easy on your otherwise stringent monthly budget.
Improves your credit ratings
Prepaying your mortgage will have a great impact on your credit ratings and they tend to improve. Most importantly, it helps you get future loans with lower Annual Percentage Rates (APR), which reduces the chances of you paying more than the actual amount of the loan while repaying it.
Things to look out for
• Most people retain their mortgage due to the tax benefits they get. However, those who are subject to minimum taxation will not get the full benefits. So, check your status thoroughly before taking a decision.
• A lot of financial institutions have penalties for prepaying the mortgage. It’s always better to avoid such schemes which might prevent you from paying off your mortgage whenever you want.
