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When you purchase a house, the idea of a mortgage or debt dangling over your head for decades can certainly be dreadful and appalling for many of us, and it is common to desire to get rid of the mortgage, the soonest possible.
If you are one of those estate owners who have fortunately achieved few initial steps on the road to financial stability. You have sufficient emergency funds, savings for retirement, or finished your high-interest debt, you are likely to dream of living mortgage-free and owning your home free and clear.
Some people relish the contentedness and tranquility of mind that comes with a financially stable and debt-free retirement. But it is essential to contemplate these warm, comforting feelings against the financial facts and reality.
But before you determine paying off your mortgage early using your accumulated funds, or significant monthly payments or frequent payments, it is imperative to step back and ascertain if it really makes sense to you financially?
As in certain cases paying off the mortgage early won’t be much beneficial as the savings on interest are not that much. Sometimes, it’s more about peacefulness and freeing up the funds for other options and not about investment returns.
A 30-year mortgage is the most common and has the longest payoff time, but one can choose a short payment term of 15 or 20 years as these come with shorter payoff time and reduced interest rates. Or one can even pay more each month to pay off the mortgage faster.
With record-low mortgage interest rates, it is tempting for some to refinance than to pay off the mortgage as they argue there is no point in paying off the mortgage early. In contrast, others assert that getting rid of debt is always a great idea in an uncertain economy.
It is highly essential to assess the risk tolerance before you make a decision.
So, ask the big question to yourself by weighing the options: is it worth paying more to become debt-free soon?
The benefits of high monthly mortgage payments;
Becoming a free and clear homeowner by getting rid of mortgage debt has several advantages;
1.Saved interest costs: When you pay off your debt early, you pay interest for less time, so ultimately, you will save more money on your interest costs in the long run. So that’s more money for you than for the mortgage lender.
2.More financial flexibility: Paying off the debt in full will free up your cash flow. When you don’t have a mortgage payment to make, your financial strain on the household will be reduced and give you more options and resources to invest or save, and you can do what you like with your funds. Once your mortgage is paid off, it can help you retire smoothly, reduce monthly expenses, minimise your obligations, burden, and expand your retirement dollars further.
3.Peace of mind: Being a homeowner outright eliminates stress and can be a rewarding experience. You don’t have to fret about the bank foreclosing or managing the budget every month. For some, even if it is not making financially much sense to pay off the entire mortgage, you can’t put a price tag on the happiness and serenity you get after being free of debts.
Unfortunately, there are drawbacks of paying off the debt too, and sometimes paying the mortgage early can come at a hefty cost;
When you pay extra bucks each month to repay your debt early, you won’t always be able to do things with those funds like;
1.You’re confining your funds: The extra money you paid on your house is not easy to access. You would have to opt for a cash-out refinance, home equity loan, or home equity line of credit to get those funds back, in case you require or need them.
2.You’re missing out on other opportunities: Mortgage interest rates are still relatively low. The interest you save while paying off the mortgage is only ROI (return on investment), which means seeing the current scenario, you are getting a low return rate.
To get a better ROI, you can invest in the stock market; if your contribution is not sufficient to 401(k), IRA, or other retirement accounts as you are paying high monthly mortgage payments, you are missing out on the tax breaks. As savings in these accounts increase, tax-deferred until withdrawal.
Though there are benefits and drawbacks to both options, you need to cautiously determine the best approach for you.
You could either invest the extra money you would have paid towards monthly mortgage payments to be financially stable or may decide to pay off the debt for peace of mind.
As per your choice, be aware and careful of the downsides so that you can decide after consideration.
It is crucial to take action today, as it is a historic chance to save thousands of dollars that won’t last for decades.
With record-low interest rates, we at MMC can help you make an appropriate decision whether you need to refinance to lower mortgage payments or pull the trigger on a new property purchase! Contact us today!