Paying off Your Mortgage Early: 10 Things to Consider

Paying off your mortgage early has been a hot topic on the internet lately. This is spurred on by the emergence of many youtube videos detailing “tricks” to pay off your mortgage. Here are 10 things that you should consider when contemplating paying your mortgage off early.

1. Can you pay off your mortgage?

There are many posts about paying off your mortgage early, but the most fundamental question is do you have the money to do it? The mortgage exists for a reason. It’s a loan you took because you didn’t have the money to buy your real estate outright. You can save your money via budgeting or salary negotiation. Once you have the money you can contemplate its appropriate use.

2. Should you pay off your mortgage?

The short answer is you should always pay off your mortgage. The deeper question is should you pay it off early? This gets to be an emotional question because many people look at outright home ownership as an artifact of true financial freedom. However, even if you have $400k stuffed under your mattress to pay off your mortgage, that doesn’t mean that it is the best use of that money. Your house is not an investment! If you don’t believe me look at your aggregated gross income on your tax return. How much came from your house? … $0?

3. Leveraging your money

Leverage is a fancy word for the use of your money. A wise philosopher once said, “Mo Money, mo Problems”. There are worse problems than too much money, but that doesn’t answer all of life’s questions either. Even if you had a mattress full of money that doesn’t mean you should throw it all at your mortgage in a lump sum payment. There are pros and cons to everything. For example, if you threw that money at the mortgage then all of the money would be sunk into the house. If you really needed cash, you wouldn’t have it.

The other decision points are the parameters of your mortgage. If you have a low interest rate like 3% and your cash could potentially earn 6% in the market, then you may be better off not paying off the mortgage if you can tolerate some risk. There isn’t a one-size-fits-all answer here. Anybody who pretends like there is is just lying to get attention.

4. Not all mortgages are equal

People forget that there are many mortgage products to choose from. These include 30-year fixed conventional mortgages, but there are also a variety of adjustable-rate mortgages too. Your decision to pay off the loan hinges on how much money you have to throw at the repayment. The motivation to do so may be heavily influenced by what kind of mortgage you have.

5. Accelerated repayment schemes

There are many “tricks” to accelerate paying off your mortgage. Truthfully, they are not totally wrong either. However, if it sounds too good to be true, you know that it is. I have seen a variety of these tricks but the commonality in almost all of them is getting some kind of short term interest-free loan and using that money to attack the principal of your mortgage. The reason this type of dialogue lives on is that there is some truth to it. It could save you money in the short term.

The overarching problem with these schemes is they don’t scale. They might help in the short term but eventually, the people that loaned you the money are going to want their money back. Don’t forget that home prices vary drastically and there are even different types of houses. A story of a paid-off condo in Kansas is hardly applicable to a single-family house in the suburbs of San Francisco. If there was a real “trick” to paying off your home, and the internet widely disseminated this trick, wouldn’t everyone be doing it?

6. Tried-and-true ways to pay off your mortgage

If you have a big pile of money and you want to just pay off your mortgage, then by all means, make it happen. However, this is not helpful for most people. If you really want to pay off your mortgage early, the sensible thing is to overpay the principal payment each month. $100/month is a good start and will make a difference. A good guideline is that an extra mortgage payment per year will take 5 years off the life of the loan. This is useful advice that will help you make future decisions.

7. Appreciation vs Inflation

Inflation is an often overlooked parmeter

Previously I had mentioned that your house is not an investment. Some people are still bamboozled into thinking their house has appreciated in value, and so their house in an investment that is paying off nicely. However, they are not thinking about inflation. Adjusting for inflation, home prices haven’t really changed in over forty years. Check out more here. The point here is your house is still not an investment and paying it off might not be in your long term best interest.

8. How long will you stay in the house

There isn’t a one-size-fits-all answer to paying off your mortgage. Every mortgage has many parameters like an interest rate and the down payment. One parameter that can help you make your decisions is how long you will stay in the house. This might make the difference in your decision to pay it off or what type of mortgage product that you are going to use. You should consider triggers that would make you move. Assess how stable is your family and job situation. The standard 30-year timeline is a long time and things could very well change.

9. Refinancing and PMI

One thing you can do with your mortgage is refinance it. People are hesitant to do it but if you can save about $450/month on your payment then there is little reason not to do it. The only thing to be careful of is that each time your refinance you are starting that 30 years over. You don’t want to be 40 years old and with 30 years on your mortgage.

If you mortgage payment includes a PMI payment, refinancing might abolish the PMI payment if you have gained enough equity in the house. PMI abolition is a prime reason to refinance your house and you should definitely look into it and take action if it applies to you.

10. US mortgage companies can be awful

There are lots of bad mortgages companies out there. If you have a good one today they could sell it to an awful one tomorrow. This could be a compelling reason to pay off your mortgage early if you have the money. If you are tired of these companies selling your mortgage but not sending the appropriate tax forms in a timely manner, you might want to pay off your house and just be done with it. Many people have a great experience with their lender but the internet is full of stories about the bad ones. If you have an awful story about a mortgage company, leave it in the comments below.

Final Words

You can read lots of advice on the internet, and some people have solid points when it comes to paying off your mortgage early. But at the end of the day, it is up to you. Only you know the parameters of your mortgage and the circumstances of your life. We’ve given you some things to think about, but your life is what you make it; so make it a good one!

Of course, before you begin, you want to make sure that you get a good deal on the mortgage itself. Check out this article to find out some valuable mortgage tips to help you save money!

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