When you own a home, the thought of paying off your mortgage early sounds like a dream. You completely own your home and can use the money you would have used for mortgage payments towards other things, like saving up for a vacation.
The decision to pay off your mortgage early is a personal one that depends heavily upon your circumstances. But before you decide to use any extra money you have to pay off your mortgage or make additional payments, make sure it makes financial sense.
You May Have To Pay A Prepayment Penalty
Before paying your mortgage off early, double-check to see if there is a prepayment penalty. This penalty is a fee some lenders charge if you pay off the balance of your mortgage early. If there is a prepayment penalty, carefully read the fine print and make sure that you understand the circumstances under which you will have to pay and how much.
Remember that not all mortgages have a prepayment penalty.
You Won’t Be Able To Deduct Mortgage Payments On Your Taxes
If you look forward to your taxes’ yearly deductions, paying off your mortgage early may not be for you. When you pay off your mortgage, you will not be able to deduct it from your federal taxes.
Pay Off Other Debts With Higher Interest First
If you have other debt to think about, like student/car loans and credit cards, it is recommended to focus on paying these off first, as they often have higher interest rates.
You may also want to put off paying your mortgage early and focus on putting money towards retirement or savings for a child’s college fund or other significant events.