When a home buyer purchases a home, they agree to a mortgage that is best for their budget. Mortgages will typically last 30 years so homeowners can more easily manage the monthly payments on their home.
However, in response to last decades mortgage crisis, there are some who push for paying off mortgages early.
The benefit to this is understandable. Homeowners will be able to completely own their home without having to make payments. This can take a lot off your mind, and you can begin to plan your new finances that don’t include your mortgage.
For example, it has always been recommended for those retiring to have their mortgage paid off just so they don’t have to budget and can focus on enjoying their lives more.
But paying off your mortgage early may not be the best option available.
There are many factors to consider before paying off your mortgage early. The stress of monthly payments may go away, but the money to pay off a mortgage has to come from somewhere. The financial flexibility of mortgages, in many cases, is better for homeowners than paying off their home early.
Also, with mortgage rates near historic lows, it could make more sense for some homeowners to refinance instead of paying off their mortgage early.
Here are some of the main things to consider before paying off your house early.
College Financial Aid
One of the things that might compel you to pay off your house early is the impact extra money can have on financial aid for college for your children. Paying off a mortgage with a lump sum will take away from any future payments you may want to make.
With the rising costs of college, it could be wiser for some homeowners to hold off on paying off their mortgage.
Homes Don’t Generate Cash
A paid off house is hard to get money out of. Unless you get a home equity loan or decide to sell your house, there is no way to good way to make money from the house you live in.
Also, homes still need upkeep, renovation and repairs. Even though your home is paid off entirely, it will still cost you money to live in your home. For homeowners looking to get money out of their home, it could make more sense to get a cash out refinance.
Retirement should always be one of your most important concerns financially. If you decide to pay off your home early, you want to make sure that your retirement fund is not going to be affected.
This is especially true for those that are younger. Emergencies can always come up, and having extra funds available will be helpful when that happens.
Cash Can Be Saved Or Spent
When you pay off your house completely, you decide to use money that could be spent any other way. This money can also be used for saving, spending or investing, all of which could be more important than paying off your home.
A good savings account will provide a cushion for any homeowner. Also, spending money may be important in the event of an emergency. Lastly, investing could turn out to be more profitable over time than paying off your home.
Tax Benefits Could Be Lost
Some homeowners get big tax breaks by having a mortgage. They get deductions for mortgage insurance, mortgage interest, property taxes and paying points. If you pay off the house then all of those tax breaks are gone, except for those associated with property taxes This could have a big effect on your taxes, and the benefits lost could end up hurting. Emergencies Might Occur
Emergencies always seem to come at the worst time. If you don’t have enough money saved up for an emergency, you’ll wish you hadn’t paid off your mortgage. Of course, there is a chance that emergencies won’t happen. But it’s better to be safe than sorry. You need to make sure there is an emergency fund for all those unsuspected costs that happens with life.
Current Rates For Refinancing
One of the biggest reasons homeowners should think twice about paying off their mortgage in full is that current mortgage rates are ultra-low. Low rates make refinancing an easy way to potentially save a lot of money on monthly payments, and any fees associated with refinancing will likely be much smaller than the total cost of your mortgage.
To see if refinancing is right for you, begin by seeing available rates and checking your eligibility.