Having a mortgage hanging on your neck can be discouraging if you have bigger financial dreams. There is an urge to clear it as quickly as you can. However, you should analyze the options within your situation to ascertain its suitability. Will the benefits outweigh the drawbacks? This article discusses everything you need to know about paying your mortgage early.
Factors to Consider Before Paying Your Mortgage Early
Amount of Liquidity Involved
A building holds low liquidity because it might take several months before you get a satisfactory deal. Thus, investing all your savings and earnings to offset your home loan will freeze your cash temporarily. Moreover, if you default some monthly dues, you may attract a stringent penalty. Ensure you have sufficient funds in your emergency account before taking the plunge.
The Opportunity Cost
What would you lose if you choose to pay your building loan early? For some, buying stocks in listed companies might produce higher remunerations than offsetting your mortgage. Once in a while, short-term high margin investment options surface. Without sufficient cash, you may forfeit them. Hence, consider your options and their opportunity costs.
Overall Mental Relief
Not everything has a financial explanation. How can you quantify the inner tranquillity that follows clearing your home loan? It is nearly impossible. Meanwhile, you will be able to create fixed monthly budgets and live on your terms. Also, it represents an avenue to mobilize funds anytime due to its equity.
Benefits of Paying Your Mortgage Early
- It is an avenue to potentially clip tons of dollars off your compounding interests over an extended period.
- Your remaining cash flow now services your needs, rather than to the financial institution.
- You can use it as worthy collateral to raise a huge sum of money.
- It grants you peace of mind since you now have 100% ownership of your home.
Drawbacks of Paying Your Mortgage Early
- It gulps a sizable percentage of your monthly income, remaining fragile liquidity.
- Early payment does not qualify for the government’s tax adjustment.
- You have a lesser chance of jumping on investment opportunities with higher returns.
- The mortgage market is volatile, and you might end up with lesser equity when it is over.
How to Pay Off Your Mortgage Early?
Eliminate Debts with Increasing Interests
Ensure you settle credits with a higher payback before thinking of offsetting your house loan. For instance, credit cards and vehicle credit tend to incur bigger paybacks than your mortgage. Owning your house with these debts still hanging is counterintuitive. Get them out of the way as quickly as you can.
Find A Good Refinancing Deal
Refinancing is an excellent avenue to offset your mortgage at a reduced duration. Although you will pay higher monthly dues, you can quickly become debt-free. Search for a 10 or 15-year plan rather than a 30-year mortgage.
Sacrifice Superfluous Expenses
If you can remove unnecessary expenses from your monthly list, you can generate free cash worth hundreds of dollars. Take your lunch to the office instead of swapping your credit card. If it is not essential, cancel the purchase. Little sacrifices add up over time. Also, channel this extra cash into your mortgage repayment plan.
Seek Expert Advice
Book a session with a financial advisor to understand the dynamics of paying your mortgage early. Find out the conditions and clauses that may attract penalties. Afterward, create a plan that favors your credit partner and yourself.
The choice to pay your mortgage early requires careful analysis of the terms and your peculiar situation. Compare the financial benefits with the mental advantages before you proceed. Also, start with the debts with a compounding interest rate. Lastly, find avenues to reduce your monthly costs and reinvest the free cash appropriately.